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The Actuary The magazine of the Institute & Faculty of Actuaries

Pension funds join forces to target companies best prepared for low-carbon economy

Leading international asset owners have together launched the Transition Pathway Initiative (TPI) to embed climate concerns into investment decisions.

Transition to low-carbon economy ©Shutterstock
Transition to low-carbon economy ©Shutterstock

In total, 18 asset owners and managers with over £2trn-worth of combined assets under management set up the initiative to assess how companies are preparing for the transition to a low-carbon economy.

This is intended to inform the funds supporting the initiative in regards to their investment decision-making, engagement with companies, and dialogues with fund managers and policy makers.

TPI co-chair, Adam Matthews, said: “The initiative is a tipping point for the market. It 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 risk and it will be a key feature in the discussions we will be having with companies over the coming years.”

The TPI is led by the Church of England’s National Investing Bodies and the Environment Agency (EA) Pension Fund, in partnership with the Grantham Research Institute at the London School of Economics.

It evaluates the quality of different firms’ greenhouse gas emissions and assesses how future carbon performance would compare to the international targets and national pledges made as part of the Paris Agreement, before publishing the results through an online tool.

Preliminary findings have shown that out of the 40 companies examined, 39 at least acknowledge climate change as a business issue, however few are at the level of strategic assessment, meaning most can improve.

The majority of companies also have board oversight of a climate change policy, and incorporate ESG issues into executive remuneration, with 28/40 and 34/40 doing so respectively.

It was found that the most common factors hindering progress are not having set quantitative targets for reducing operational greenhouse gas emissions, and not having emissions data-verified.

EA chair, Emma Howard Boyd, said: “Businesses should be able to 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 TPI, 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.”