CISL calls for standardised climate disclosure framework for investors

While most investors are measuring and disclosing their climate performance, it is hard to compare progress between companies because there is not a universal framework. This makes it more challenging for investors to be held to account or to accelerate progress.

Investors are facing mounting pressure to raise climate ambitions, including from changing legislation on net-zero

Investors are facing mounting pressure to raise climate ambitions, including from changing legislation on net-zero

That is according to a new report, out today (14 April) from the Cambridge Institute for Sustainability Leadership’s (CISL) Investment Leaders Group (ILG).

The report assesses 15 funds that are ranked highly on climate performance by CDP, in terms of disclosing direct and financed emissions and reducing them in line with climate science. Of these funds, eight explicitly measure and disclose the climate performance of their activities; six disclose climate intensity, one discloses emissions on a portfolio basis and one discloses the emissions its activities have helped to avoid. The ILG praises this progress but argues that the use of different metrics makes it challenging to compare performance.

Moreover, just three of the funds are explaining how their activities are in line with the Paris Agreement. The report argues that this is not good enough, given that the world is currently on track for 3.2C of warming by 2100 and that the financial sector is under mounting pressure to act on climate change.

All in all, the ILG is recommending a “meaningful, outcome-based” system of metrics that is universally adopted by investors when measuring and reporting on past and predicted emissions. The report argues the case for a “temperature score” – instead of stating that portfolios are compliant with the Paris Agreement’s 2C scenario, for example, they would state that they are 1.85C or 1.75C aligned. Temperature scores are already “universally understood” and “intuitive”, the report states.

Professionals at investors interviewed by the ILG admitted that measurements are “are still immature and inconsistent” and that they would mention a unified framework. At this stage, the report does not speculate whether such a framework should be adopted voluntarily or made a legal requirement.

“When it comes to their role in tackling climate change, investors have progressed from asking ‘why’ to now asking ‘how’,” ILG chair John Belgrove said.

“The time for action is now because the world is not on track to reach the Paris alignment goals. Investors acting at scale to tangibly address and monitor their portfolio climate stability impact, informed by temperature scores, have the collective power to get us on track. Such breakthrough tools demonstrate how business and science can work in harmony within timescales that matter.”

The ILG will publish a second part of the report this summer, outlining how financial institutions can decide on how they will approach the development of temperature score methodologies. It will also include a universal framework that it will pitch as the “potentially standard” method for the future.

Recent research from ING found that 72% of investors are planning to increase their ESG ambitions and accelerate progress in this field as a result of Covid-19. The survey polled 100 institutional investors earlier this year. However, it warned that definitions of ESG and issues focused upon vary between businesses and that, in many cases, new long-term targets have not yet been translated into short-term changes.

Net-Zero Asset Managers Initiative

Late last month, the Net Zero Asset Managers Initiative announced 43 new members, bringing its membership to more than 70 organisations collectively representing $32trn of assets under management.

New members include BlackRock and the Vanguard Group.

The initiative commits members to reaching net-zero financed emissions by 2050 or sooner. Several members are also part of the Institutional Investors Group on Climate Change’s (IIGCC) efforts to develop and pilot what has been described as the world's first blueprint for aligning investment portfolios with the Paris Agreement on climate.

Sarah George



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