Brian Minns, CFA, will speak at the Climate Risks and Returns Conference of the CFA Institute, held from 20 to21 April 2023 in New York.
Partnerships between institutional investors are crucial to achieving a low-carbon economy.
As institutional investors, we have a fiduciary duty to act in the best interests of our beneficiaries and to obtain investment returns sufficient to meet their expectations. To achieve this, we must also ensure that there are stable financial, social and environmental systems on which to build these returns.
At the University Pension Plan (UPP), we believe that promoting healthy systems goes hand in hand with our fiduciary duty to our members. That’s why, when we developed our response to climate change and our zero-emissions approach, we aimed beyond our own portfolio, because we know that emissions must come down in the real world too, and that a transition to Well managed low carbon requires systemic change from all corners of the global economy.
The transition to net zero also presents opportunities for investors – institutional and otherwise – to build confidence, resilience and competitiveness in the wider economy by cost-effectively funding activities that support sustainable solutions and reduce emissions.
By contributing to collaborative initiatives with the global investment community, investors create reciprocal relationships through which we can share expertise and best practices, leverage resources and amplify our influence to create the change we need. In this way, we can reduce uncertainty and risk and maximize our potential for generating returns.
Such a collaborative effort among asset owners is one of the most effective ways for organizations like ours to catalyze systemic change and fulfill our common fiduciary duty.
Systemic risk requires collective action
When investors directly engage and set expectations for both the companies they own and the external managers they partner with, we help those companies stay focused on the transition path, improve their resilience and reduce their emissions. Investors also need companies to improve their climate-related disclosures to better track their progress towards net zero goals and make more informed investment decisions.
Finance-led groups like Climate Action 100+ and the Institutional Investors Group on Climate Change (IIGCC) work to ensure sound science, alignment and consistency of all member activities. By engaging with diverse high-emitting companies through a set of common goals, we work not only to change their behavior, but also to improve climate-related expectations and the structure of information flows for all companies and all Investors.
Collective advocacy to protect and enhance value
Through collective advocacy with policymakers and regulators, investors can encourage rules and frameworks that support the interests of our beneficiaries and create the conditions for a well-managed climate transition. Investors can collaborate and amplify their voice through well-established industry initiatives such as Net-Zero Asset Owner Alliance (NZAOA) convened by the UNa member organization of 85 institutional investors with over $11 trillion in assets under management (AUM), and the Ceres investor network on climate risk and sustainabilitywhich collectively represents over 220 investors and over $60 trillion in assets under management.
Through our participation in policy working groups, such as those convened by the Canadian Coalition for Good Governance and the Responsible Investment Association, we can define and promote good corporate governance practices in Canada and around the world. We can also influence public policy to improve governance standards. Greater transparency, accountability and disclosure in turn help manage risk and protect the value of investments.
Partnership in times of change strengthens the collective
As national and international climate transition regulations and incentive frameworks evolve, investors face new legal and reputational risks as well as potential impacts on returns. Rather than navigating this changing landscape alone, they can join investor alliances and help coordinate policy advocacy, facilitate better knowledge sharing, and mitigate old and new risks.
For example, to combat greenwashing and provide investors with more and better information to help guide their decisions, the International Sustainability Standards Board (ISSB) will implement new global accounting standards for measuring and reporting climate-related impacts in January 2024. Collaborative investor groups helped shape these new standards and are ready to support their launch around the world. Again, individual investors would be hard pressed to keep up with the rapid pace of change in this area or develop the collective influence that a group of investors can wield.
There are many options for joining like-minded investors in local markets or on the international stage. The global low-carbon transition will continue to challenge all types of investors and present both risks and opportunities along the way. Net zero will not be achieved in isolation, but will require collective action across the financial community.
Together, through partnerships between institutional investors and investors of all sizes, we can help shape the future of finance and bring about the systemic and global change needed to make net zero a reality.
If you liked this article, don’t forget to subscribe to Enterprising investor.
All posts are the opinion of the author. As such, they should not be construed as investment advice, and the opinions expressed do not necessarily reflect the views of the CFA Institute or the author’s employer.
Image credit: ©Getty Images / JamesBrey
Professional Learning for CFA Institute Members
CFA Institute members are empowered to self-determine and report Professional Learning (PL) credits earned, including content on Enterprising investor. Members can easily register credits using their HGV tracker online.