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How well are European asset owners' portfolios aligned with the Paris Agreement's climate goals?

WWF identified the largest asset owners in 11 European countries and approached 88 of them to undertake a forward-looking climate scenario assessment. 33 agreed to disclose their climate alignment results in this report for a set of key climate-relevant technologies: coal power, renewable power, coal mining, oil production and gas production.

Article also available in : English EN | français FR

On the occasion of COP24, WWF launched his report European Asset Owners: Climate Alignment of Public Equity and Corporate Bond Portfolios. The report offers a forward-looking climate scenario analysis on how Europe’s largest asset owners are aligning - or not - their public equity and corporate bond portfolios with the Paris climate goal of keeping global warming well below 2°C.

WWF identified the largest asset owners in 11 European countries and approached 88 of them to undertake a forward-looking climate scenario assessment[1]. 33 agreed to disclose their climate alignment results in this report for a set of key climate-relevant technologies: coal power, renewable power, coal mining, oil production and gas production.

Sebastien Godinot, Economist at WWF European Policy Office and lead author of the report said: “Investment decisions need to be guided by the risk considerations of a rapidly changing natural world. WWF applauds the 33 asset owners that disclosed forward-looking climate scenario analyses for demonstrating best practice. Asset owners that choose to undertake forward-looking climate scenario assessments will put themselves ahead of the curve in understanding the climate-related risks and opportunities within their portfolios.”

The three major findings of the research are:

1. Much greater efforts are needed to ensure that public equity and corporate bond investments align with the well-below 2°C transition.There are encouraging indications that asset owners’ investments are partly aligned with that goal for some of the technologies included in the WWF research. However, none of the asset owners is aligned for all technologies.

2. There are clear differences between countries in terms of willingness of asset owners to participate and disclose climate alignment findings. In Nordic countries (Denmark, Finland, Norway, Sweden) there is extensive disclosure of climate alignment results and several investors are actively engaged in international initiatives. In the Netherlands and France there is some degree of disclosure. In other countries (Belgium, Germany, Italy, Spain, United Kingdom) there is zero disclosure.

3. There are encouraging indications of a growing recognition among asset owners of the importance of climate-related financial risks and opportunities. 55 out of the 88 contacted asset owners (61 percent) are actively engaging in forward-looking climate scenario analysis.

Anna Hyrske, Head of Responsible Investments, Ilmarinen Mutual Pension Insurance Company said: ”Ilmarinen utilizes climate scenarios in its investment operations. In our opinion it is vital to create different types of scenarios despite the challenges related to the analysis and methodologies. Investors are heading in the right direction but there still a lot to do. It is also important to get those investors involved who are yet to take climate change into account. It is great to see Nordic investors leading through example on climate transparency.”

WWF will continue to advocate for establishing harmonised frameworks for forward-looking climate scenario assessments via industry practices and standards, supervisory oversight and regulation. For WWF, these actions and policies must ultimately lead to the alignment of financial flows and economic activities with the Paris climate goals.

Next Finance 15 January

Article also available in : English EN | français FR

See online : European Asset Owners: Climate Alignment of Public Equity and Corporate Bond Portfolios.

Footnotes

[1] WWF applied The Paris Agreement Climate Transition Assessment (PACTA) for the forward-looking climate scenario analysis. PACTA builds on a methodology developed by the Sustainable Energy Investment Metrics (SEIM) consortium. It measures the climate alignment of public equity and corporate bond portfolios by comparing them with different climate scenarios, has a global scope, and allows asset owners to respond to three questions:
1. What was the portfolio’s exposure to climate-relevant technologies at the end of 2017?
2. Will the portfolio increase or decrease its climate alignment between 2018 and 2023?
3. What is the portfolio’s exposure to climate-relevant technologies projected to be in 2023?

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