14/05/2021 | Primary

Investors to develop new tool to assess Governments’ climate change governance and performance

Institutional investors, in collaboration with key investor networks, have spearheaded a project to create a new assessment framework enabling investors to fairly and appropriately measure, monitor and compare sovereigns’ current and future climate change governance and performance.

Commencing work in June 2021, the project team aims to pilot the assessment framework, Assessing Sovereign Climate-related Opportunities and Risk (ASCOR), by the end of 2021.

The tool will then be used to produce an annual public assessment of the climate change governance and climate change performance of sovereigns. The assessments will provide insights that support investors’ research and decision-making, giving them a sound and cohesive starting point to analyse sovereign debt investments and engage with government officials and policymakers.

The project team comprises BT Pension Scheme (BTPS) and the Church of England Pensions Board, alongside: the UN-convened Net-Zero Asset Owner Alliance, (AOA); Coalition for Environmentally Responsible Economies (Ceres); the Institutional Investors Group on Climate Change, (IIGCC); the Principles for Responsible Investment, (PRI) and the Transition Pathway Initiative, (TPI), supported by Chronos Sustainability.

Morten Nilsson, CEO BT Pension Scheme Management (BTPSM) said: “For institutional investors wanting to manage their climate risk and achieve net zero goals, good quality analysis on all asset classes is a must.”

“While significant progress has been made, one asset class which remains a challenge is sovereign debt which, for many institutional investors, can form a large part of their portfolios.”

“This initiative is seeking to create a way for investors to assess their sovereign debt exposure to these risks and opportunities and support engagement with international policy makers to drive net zero action”.

Victoria Barron, Head of Sustainable Investment, BTPSM said: “This initiative is an exciting collaboration between investors and investor networks, AOA, Ceres, IIGCC, PRI and TPI, to deliver a practical tool to fairly and appropriately assess the climate change governance and performance of sovereigns. We invite investors to join us in this project, in a year that will be critical to advancing action on climate change”.

Target-setting frameworks have been evolving, including the IIGCC’s Net Zero Investment Framework and the AOA’s Target Setting Protocol. The PRI has recently published guides specifically focussing on ESG incorporation and engagement for sovereign bondholders.

These frameworks all need a robust approach to assessing sovereign carbon performance. The project partners agree that there is a critical need for an investor-led tool that can provide a common lens to understand sovereign exposure to climate risk and to understand how sovereigns plan to transition to a low-carbon economy.

The partners are inviting expressions of interest from investors who would like to be involved. For further information contact Joanne Lewis at joanne.lewis@unpri.org.   

AOA, Ceres, IIGCC, PRI and TPI will be consulting their members at key points during the project to ensure the framework aligns with respective initiatives and to maximise the opportunity for a consolidated unified approach amongst investors.