The implications of climate change as a long-term gamble has started to shake up the investment community. A hotter globe will bring along new intricate and entwined layers of risks: Apart from having physical assets on the line, companies will also face financial, reputational and regulatory risks as the global economy continues its transition towards a low-carbon track.
The rise of climate change up on the investor's' agenda was embodied in the 1000+ attendees participating in the recent PRI in Person 2015, the largest global responsible investment conference so far, organised by the UN Principles for Responsible Investment Initiative. The Initiative is an international network of investors signing up to and working together to put six Principles for Responsible Investment into practice.
In her speech on the PRI Report on Progress, an insight into the responsible investment activities of the PRI signatory base, Fiona Reynolds, Managing Director of PRI, highlighted that although a high awareness of climate change has entered into the community, implementation is progressing slowly. "Signatories are increasingly seeking to better understand their portfolio's exposure to climate change", she says.
While climate impact measurement, monitoring and verification have for long been a robust part of South Pole Group's portfolio of sustainability solutions, the Group has partnered with key industry players to ensure a global presence and cutting-edge data and analytics: The company is working with oekom research to better help clients integrate ESG and risk assessment aspects into their investment decisions, and has branched out to the Australian, New Zealand and French market via its partnership with CAER and joint-offering with EthiFinance.
"You cannot reduce something you cannot measure - understanding your carbon footprint is becoming good housekeeping for investors", says Dr. Maximilian Horster, South Pole Group's Director Financial Industry, attending the event. "A carbon footprint analysis is the necessary step to address both your impacts and your risks, and reduce them in the long run."
Investors are already looking to reduce climate impact via different strategies, funds and indexes. Investment strategies based on the indexes such as the Fossil Free Indexes US (FFIUS), for instance, offer guidance for investors concerned about long-term risks to their portfolios from so-called stranded assets, i.e., assets that become devalued or obsolete when they cannot be used or sold. In order to continue developing meaningful indexes that address the carbon footprint of businesses across different sectors of the economy, the company behind FFIUS, Fossil-Free Indexes partnered with South Pole Group earlier this summer.
As reinforced by the attendees at the PRI in Person, fully embedding ESG and a long-term investment outlook in investment processes has become increasingly important. Put shortly by Douglas Hodge, CEO of global investment management firm PIMCO at the event: "ESG and sustainable investing is smart investing."