OPINION: Investor climate action plans can propel a clean transition

Thursday, 27 January 2022 10:01 GMT

The sun rises behind The Shard and the financial district as a cyclist rides through Richmond Park in London, Britain, May 13, 2019. REUTERS/Hannah McKay

Image Caption and Rights Information

* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.

Here’s how to make net-zero pledges a reality and hold those making them accountable

By Rev. Kirsten Snow Spalding & Rahnuma Chowdhury

Rev. Kirsten Snow Spalding is senior program director of the Investor Network at Ceres. Rahnuma Chowdhury is investor climate action lead at the United Nations Environment Programme Finance Initiative.  

Commitments are meaningless without plans for how to achieve them. Just ask anyone who’s ever tried to keep a New Year’s resolution. 

As the climate crisis wreaks havoc across the world with deadly floods, heat waves, tornadoes and wildfires, investors and companies across the globe have stepped up with commitments to reduce emissions, set net zero targets and take other actions to tackle the climate crisis.

Bold ambitious action is needed to make the transition to a climate resilient economy that will unleash economic opportunity while preventing the worst, irreversible climate catastrophes. 

Among investors, 337 institutional investors from with combined assets of nearly $70 trillion have committed to reach net zero emissions across their portfolios by 2050 or sooner by joining the Net Zero Asset Managers Initiative the Paris Aligned Investment Initiative or the Net Zero Asset Owners Alliance.

In addition, hundreds more investors have pledged climate actions, including phasing out of thermal coal assets and engaging with high-emitting companies.

Investors increasingly recognize the systemic risk of climate change to capital markets and to their portfolios. They know capital must flow into low and zero carbon assets and away from high emitting assets.  

It’s no small task for an investor to transition billions of dollars in assets, but committing to a result by 2050 or even 2040 leaves decades during which action is critical. Every investor needs a transition plan for their portfolios and their engagements with companies they own.

Implementing robust climate action plans that underpin commitments and lay out steps, including reaching short and medium-term targets, are the only way investors will reach their goals. Investors plan steps to drive their investment strategies; they need to do the same when it comes to climate.

Unless investors publicize transparent and detailed investor climate action plans, stakeholders, governments and the public won’t be able to hold them accountable or know if the necessary financial activity to transition the economy is happening.  

That is why the founding global networks of The Investor Agenda developed the Investor Climate Action Plans (ICAPs) Expectations Ladder and Guidance, a comprehensive framework on transition planning for investors.

Drawing on existing initiatives and guidance, the ICAPs Expectations Ladder sets out actions for investors to implement in four key areas to reach climate goals: investment, corporate engagement, disclosure and policy advocacy.

The Expectations Ladder is designed for all investors, regardless of where they are on their climate journey, by providing four tiers of actions and a ladder to move up to more ambitious tiers.  

The good news is that all sorts of investors are, in fact, developing investor climate action plans.

Signatories to the Net Zero Asset Managers and the Paris Aligned Investment initiatives are doing so as part of their agreements to the initiatives. What’s more, they are developing plans that strive towards the most ambitious tiers, aligning portfolio emissions reduction targets with a 1.5ºC pathway and global net zero emissions by 2050 or sooner.

Investors of these two initiatives, along with signatories to the Net Zero Asset Owners Alliance, pledge to set intermediate targets covering all assets, and update them every five years, using recognized methodologies for setting, assessing, reporting, and verifying performance.  

Earlier this week, The Investor Agenda, a coalition our organizations helped found, released 10 case studies from institutional investors it works with that highlight the leading best practices for investor climate action plans.

The case studies explore the processes that some major investors are undertaking to develop detailed climate action plans and might inspire other investors to take up the challenge of devising a plan.   

These investors’ climate action plans include a range of approaches. Some show asset allocation and active engagement with portfolio companies to align business operations with a 1.5 C future while others show the first steps of integrating climate analysis into investment strategies. 

By publishing a climate action plan, an investor is drawing a line in the sand, stating that it is ready to be held accountable to the commitments it has made.   

We believe the accountability created by the public release of investor climate action plans is already beginning to propel a shift in capital flows towards addressing the systemic risks posed by the climate crisis. 

The whole market is moving to a lower carbon economy. And there’s real reason to believe that, over time, it will move to a net zero emissions economy. Evidence of momentum is catalyzing further momentum.  

The world can afford nothing less.