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Investment leaders highlight need for universal method for understanding Paris alignment of funds

last modified Apr 22, 2021 11:31 AM
14 April 2021 – New analysis from global investors network the Investment Leaders Group (ILG) shows that the present disclosure of fund performance does not allow investors to understand and compare the alignment of funds with the Paris Agreement on climate change.

In a new report, the ILG recommends the use of temperature scores to reveal fund compatibility with limiting global warming to well below 2°C compared to pre-industrial levels. 

Understanding the Climate Performance of Investment Funds Part 1: The case for universal disclosure of Paris alignment suggests current attempts to disclose the climate performance of funds are patchy and non-standardised, resulting in confusion among beneficiaries.  

The report recognises that a range of performance measures are needed by investment managers to understand the relationship of their funds with climate change. However, it proposes that a meaningful, outcome-based number should be adopted by all investment funds to report alignment with the Paris ambition  and that number should be a temperature score.

John Belgrove, Senior Partner, Aon and Chair of the Investment Leaders Group, said: 

“When it comes to their role in tackling climate change, investors have progressed from asking “why?” to now asking “how?”. For asset owners to act at scale with intention and focus they need simple, practical, reliable, outcome-based portfolio metrics. Portfolio temperature scores perfectly meet that need and are a universally understood intuitive concept.  

“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 report looked at a sample of funds ranked highly by CDP for sustainability performance. Analysis of publicly available information including fund factsheets, key investor information documents, annual reports, sustainability policies and reports, and web sites revealed a wide number and variety of investment strategies, measurement frameworks and disclosure arrangements among the sample.

Dr Jake Reynolds, Executive Director for Sustainable Economy, CISL said:

“Increased interest in climate change among investment managers is very welcome. The next big step, however, will be to clarify how well funds are aligning with the Paris ambition, and do this in a credible yet simple way that can be readily understood by the public. We believe all funds should report in this way, not only funds with specific climate objectives.”

Of the 15 funds assessed, eight measure their climate performance explicitly - six through carbon intensity, one through portfolio carbon emissions, and one through emissions avoided through investment. Just three of the funds seek to demonstrate their alignment with the Paris ambition - two in terms of the percentage of assets aligned with a 2°C global warming scenario, and one through a temperature score.

Lucian Peppelenbos, Climate Strategist, Robeco, said:

“Robeco is committed to achieving net zero greenhouse gas emissions across all its assets under management by 2050. One of the most powerful ways to take our clients and stakeholders along that journey, is to show the inherent global warming potential of our investments in degrees Celsius. Since these measurements are still immature and inconsistent, we are pleased to work with the University of Cambridge in conducting academic research on temperature scoring models. Our aim is to enhance academic rigor, transparency and comparability, so that temperature scoring can develop into a widely used metric in the financial sector.” 

Part 2 of this report, to be published in summer 2021, focuses on temperature score methodologies, including the underpinning science, methods of emissions projection, and distribution of carbon budgets. It offers a decision-making framework, helping financial institutions distinguish the correct approach based on their various assumptions and concludes with a simple, potentially standard disclosure method for general use by the investment industry.


Read Understanding the Climate Performance of Investment Funds Part 1: The case for universal disclosure of Paris alignment

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Lucy Auden

Lucy Auden, Senior Programme Manager, Investment Leaders Group