Thirteen leading international asset owners launch major initiative to embed climate concerns in investment decisions

11/01/2017

Preliminary results released for oil and gas and electricity utilities sectors
Thirteen leading international asset owners and five asset managers with over £2
trillion under management launched the Transition Pathway Initiative (TPI) today to
better understand how the transition to a low-carbon economy affects their
investments. The TPI will assess how individual companies are positioning
themselves for the transition to a low-carbon economy through a public, transparent
online tool. The heads of funds involved launched the Initiative this morning at the
opening of the stock market at the London Stock Exchange.

The Initiative has been led by the Church of England’s National Investing Bodies
and the Environment Agency Pension Fund in partnership with the Grantham
Research Institute at the London School of Economics. Data has been provided by
FTSE Russell.

Preliminary assessments released today include the oil and gas and electricity
utilities sectors. As part of a phased rollout, management quality and carbon
performance assessments of additional sectors and individual companies will follow
in the coming months. The tool has been designed to support the requirements of
the Task Force on Climate-Related Financial Disclosures (TCFD), individually
profiling future projected emissions against the two-degree target and current
public policy commitments.

Preliminary assessments have already highlighted key findings, including:

Adam Matthews, Co-Chair of the Initiative and Head of Engagement for the Church
Commissioners and Church of England Pensions Board, said “The Transition
Pathway Initiative is a tipping point for the market. The Initiative will identify
companies that are aligned with the transition to the low-carbon economy and
those most exposed to climate transition risk. There can be no doubt about the
seriousness with which asset owners are taking account of this risks and it will be a
key feature in the discussions we will be having with companies over the coming
years.”

Emma Howard Boyd, Chair of the Environment Agency said “Businesses should be
able explain to investors how they plan to manage climate change risks, invest and
innovate on the way to the zero-carbon economy of the future. With the launch of
the Transition Pathway Initiative, asset owners from around the world are sending a
strong signal that portfolios will align in the future with companies that are taking
the transition to a low carbon economy seriously.”

Professor Simon Dietz, Co-Director of the Grantham Research Institute at the
London School of Economics, said “The TPI brings transition risk to life for asset
owners and asset managers. As well as allowing investors to objectively compare
the progress of companies towards a low-carbon economy, the tool highlights the
work governments still need to do to align public policy to the two-degree target
agreed in Paris.”

Mark Makepeace, CEO of FTSE Russell, said “The launch of the TPI highlights the
growing momentum among asset owners to consider the economic implications of
the transition towards a low-carbon economy into their stewardship and investment
processes. FTSE Russell has long been a pioneer in ESG and sustainable investing
and we are delighted to have been chosen by the TPI as the data and analytics
partner for this exciting initiative.”

Frédéric Janbon, CEO of BNP Paribas Investment Partners, said “BNP Paribas
Investment Partners is very pleased to be among the asset managers that actively
support the Transition Pathway Initiative. It is important for asset managers to
partner with asset owners, as by doing so we are able to send a unified message to
companies regarding our expectations of them as they position themselves for the
transition to a low-carbon economy. It also sends a clear signal to the wider world
that we are actively engaging with companies to help them to work towards greater
action, as well as disclosure of transition risks, in order that their shareholders can
make fully informed investment decisions.”

The online tool developed by the TPI – available at transitionpathwayinitiative.org –
tracks a company’s management quality and carbon performance. Management
quality assessments will use data from FTSE Russell to assign companies to one of
five levels, ranging from level 0 (no recognition of climate change as a significant
issue) to level 4 (climate change deeply integrated into a company’s business
practices). Performance assessments will compare individual companies with
internationally agreed benchmarks made as part of the Paris Agreement. These
benchmark emissions pathways will be sector-specific.
Notes to editors

Progress in reducing carbon emissions is measured against both the two-degree
international target, and against national pledges made at the Paris United Nations
Conference of the Parties – the Nationally Determined Contributions (NDCs).

The founding members (AUM of £370bn) are: The Church Commissioners for
England, the Church of England Pensions Board, CBF Church of England Funds, the
Central Finance Board of the Methodist Church, the Environment Agency Pension
Fund, the Local Authority Pension Fund Forum, RPMI Railpen, the Swedish National
Pension Funds (AP1, AP3 and AP4), USS, Wespath Benefits and Investments and the
West Midlands Pension Fund.

The asset managers who are supporting the initiative (AUM of £1.7trn) are: Aviva
Investors, BNP Paribas Investment Partners, Hermes Investment Management,
PGGM and Standard Life Investments. HermesEOS will also be using the tool in
support of its engagement with investee companies. BNP Paribas Securities
Services, a leading global custodian with $9 trillion in assets under custody, also
actively supports the initiative.

The Church of England is involved through its National Investing Bodies (NIBs) – the
Church Commissioners for England, Church of England Pensions Fund, and CBF
Church of England Funds.

Additional quotes from partners

Barbara Boigegrain, CEO and General Secretary of Wespath Benefits and
Investments, said “For some years, Wespath Benefits and Investments (pension
fund agency of The United Methodist Church) has recognized the transition
underway to a low-carbon global economy and the need for us to understand the
long-term trends affecting our investments. We will use our leadership position to
influence other North American funds and investors to use the TPI in analysing their
portfolios.”

Euan Stirling, Head of Stewardship and ESG Investment at Standard Life
Investments, said “The Transition Pathway Initiative is an important step forward in
the necessary route towards lower carbon intensity. A large gap currently exists
between governmental commitments on emissions made in Paris in 2015 and the
preparations of companies to help meet those challenges. The TPI will provide a
useful tool for us as investors to gauge how effectively companies are addressing
the sustainability of their business plans.”

Sir Andreas Whittam Smith, First Church Estates Commissioner of the Church
Commissioners for England said “The Transition Pathway Initiative is a significant
intervention by church asset owners and others. It will enable us to have a new
conversation with companies based on a rigorous understanding of where they sit
on the transition to a low-carbon economy, and to follow through on the
commitments we have made in our climate change policy.”

Johan Magnusson, Chief Executive of AP1 said “This initiative fills an information
gap and will help us and other investors to make more informed investment
decisions. We are pleased to be involved at this early stage in the development of
TPI, an initiative well in line with the AP1’s sustainability strategy.”

Elizabeth Fernando, Head of Equities at USS said “As a long-term investor USS
wants to be able to assess how companies are managing climate change and the
risk it poses to their business. The TPI provides a tool for us to do this and as a
result will allow us to make better informed investment decisions improving financial
returns for our members and beneficiaries.”

Kieran Quinn, Chair of the Local Authority Pension Fund Forum said: “As a
recognised leader in engaging with companies, LAPFF’s participation in the
Transition Pathway Initiative will enhance demonstrating the progress of our
engagements on carbon risk with high impact companies on the necessary
transition to a low carbon economy.”

Bruce Duguid, Director, EOS, Hermes Investment Management said “The Transition
Pathway Initiative [or TPI] provides a useful framework for setting stretching but
feasible corporate engagement objectives on climate change. We have already
piloted this approach in our engagement with coal-exposed companies.”

Patricia Espinosa, Executive Secretary of the UN climate convention (UNFCCC) said
“I applaud the new Transition Pathway Initiative and its founding members. It
represents yet another potentially powerful way of aligning real-world global
investments with the real-world urgency of meeting the goals, aims and aspiration
of the Paris Climate Change Agreement”.

Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change said
“IIGCC welcomes the launch of the Transition Pathway Initiative. As investors seek
to help drive the changes required to implement the Paris Agreement, it is great to
see new tools emerging that asset owners and managers can employ to assess
climate transition risk through benchmarking corporate climate disclosure and
evaluating how well a company is positioning itself as part of the low carbon
transition.”

Erik Solheim, Head of UN Environment said “Climate change poses an
unprecedented risk to investments. For the sake of portfolios – and the planet – it is
important that asset owners take action now. That’s why we at UN Environment
welcome the Transition Pathway Initiative and the leadership of the asset owners
backing it. Building on Paris commitments, it is another step on the transition to a
low-carbon economy.”