As an investor, how do you assess the consequences of climate change for the companies in which you invest? Or their readiness to anticipate them? The Investor Leadership Network, of which APG is a member, releases a practical guide to help investors understand just that.
Analyzing the investment risks that emerge from climate change is a relatively recent undertaking. As no one knows exactly how climate change, regulations, technologies and other moving parts will evolve, companies work with various climate scenarios to determine the future consequences for their businesses. This can complicate the risk assessment investors perform on (potential) investments. To help them evaluate companies’ scenario analyses, the Investor Leadership Network (ILN) now offers a practical guide.
The report, ‘Climate change mitigation and your portfolio’, focuses on a 1.5°C scenario in line with the Paris Agreement. This is the scenario in which the global temperature rise will remain limited to 1.5 degrees Celsius. The guide helps investors understand how emissions reductions will take place in specific sectors over time, and the implications for a company’s strategy and performance. It contains a detailed sector-by-sector breakdown of carbon budget contributions and the pathways required to achieve the decarbonization target.
The toolkit is very practical. For example, it lists a number of questions investors can ask companies, such as “Does the analysis accurately reflect how the company’s market would change in a 1.5°C scenario?” or “Does the analysis link the scenario to financial impacts for the company?”
“In ILN we found a global network of like-minded peers with the same ‘can do’ spirit, geared towards tangible results and concrete output,” says Céline van Asselt, Chief Finance & Risk Officer and member of the board of APG Asset Management. “The report just published, now including the toolkit, is an excellent proof of that.”
In addition to enhancing investors’ understanding of climate scenario analyses, the guide helps them to have practical conversations with companies about how to get to net-zero emissions. ILN hopes that the resources and tools will help the investment industry recognize climate risks sooner and speed the transition to a more sustainable economy.
The report, a summary and the investor guide can be found here.