How Investors can use TPI

The TPI was developed with investors in mind. Until its launch, it had not been clear what the transition to a low carbon economy looked like for individual companies and sectors, raising many important practical questions for investors.

The TPI enables assessment of how companies are managing climate change and the risk it poses to their business. In turn, this enables better-informed investment processes and decisions, and can shape too engagement activities and proxy voting decisions.

Why should investors be concerned about Climate Change?

Under the 2015 Paris Agreement, countries have committed to limit increases in global average temperature to less than 2°C above pre-industrial levels, with further objectives to keep increases within 1.5°C of pre-industrial levels. To date, over 160 nations have pledged to contribute to these targets.

Policy action presents both an investment risk and opportunity. Transitioning to a low-carbon economy may affect company cash flows, profits and result in “stranded assets”. Energy intensive sectors, the fossil fuel-based industries and high greenhouse gas emitting sectors are particularly exposed to this risk.

The emission reductions set by the Paris Agreement will require considerable effort and capital inputs from both the public and private sectors, and will have major implications for individual companies and sectors.

Some important considerations and questions for investors include:

  • Understanding if company strategies sufficiently address the real climate risks embedded in their business models;
  • Whether companies are appropriately positioning themselves for the low carbon economy and to meet Paris Agreement goals;
  • Demonstrating – to beneficiaries, clients and stakeholders – that their interventions are meaningfully contributing to the goals of the Paris Agreement and that they are effectively managing the risks and opportunities presented by the transition.

Using the TPI to make more informed decisions

The data and information provided by TPI can be used by investors in a variety of ways – such as to inform investment research, decision-making, company engagement and proxy-voting; however, it must be emphasised that investors will inevitably make their own decisions on how to use data provided by initiatives such as TPI.

Furthermore, TPI does not impose any obligations on supporting organisations to use TPI data in any particular way. It is for individual organisations to determine the most appropriate ways in which TPI can be helpful to their internal processes.