The PRI Climate Change Strategy Project

With scientific concerns about the effects of carbon emissions settled, asset owners are becoming increasingly interested in understanding what role they can play to help achieve a safe environment for future generations.

A new discussion paper from the PRI, Reducing Emissions across the Portfolio, finds that there is a strong case for asset owners to play an effective role in reducing emissions, alongside government and business, which is fully consistent with fiduciary duty.

JEI Editor Cary Krosinsky is Lead Consultant to the PRI on this project.

Any response to climate change must be tailored to an asset owner’s investment approach and asset class mix.

Asset owners are being encouraged to:

  • understand their carbon risk exposure by measuring their portfolio carbon footprint and analyzing and reviewing it with portfolio managers;
  • mitigate this by setting a goal to reduce emissions, as appropriate for their organization;
  • engage directly with policy makers and companies on transitioning to a low-carbon environment;
  • increase investments in clean energy and other carbon alternatives.

The paper looks at the asset classes for which carbon footprinting can be done, including listed equities, fixed income, private equity, and property and infrastructure, with commodities presenting more of a challenge due to the lack of clear guidelines available for investors.

Governments are working toward COP21 in Paris in December through bilateral agreements, high-level discussions, and other lead-up gatherings. However, even if governments fail to reach an agreement at COP21 in Paris in December, the potential impacts of climate change on the economy and the global carbon budget mean that asset owners will still need to consider their carbon risk exposure and the full range of possible actions to reduce emissions.

Asset owners are already taking concrete actions. Examples include the Aiming for a Coalition shareholder resolutions on climate change, as well as the growth in green bonds, whereby proceeds are earmarked for projects with environmental and/or climate benefits. A new investor platform, indicates a range of possible actions in measurement, engagement, and reallocation to low-carbon investments. Investors have also been engaging directly with companies on reducing their carbon emissions and, in some cases, divesting fossil fuels from their portfolios.

The next stage of the project will assist asset owners in setting a goal that is challenging and attainable. This will be through a pilot framework developed by the project participants; it will take into account the key factors for establishing a goal outlined in this paper and the experience of asset owners participating in the project.

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