A new solution has been launched today to help institutional investors align their portfolios with the Paris Agreement's aim of limiting global warming to 1.5°C above pre-industrial levels.
The Analytics for Climate Transition (ACT) solution, developed by consultancy firm Mercer, draws on multiple data providers and metrics to assess portfolios across a spectrum of carbon risks.
Portfolios are then ranked on their ability to transition to net-zero emissions, from low capacity, to investments that are low-carbon risk or are already providing climate solutions.
The tool helps investors to set portfolio investment baselines, assess investment opportunities, establish targets, and produce implementation plans that can be integrated with strategy and portfolio construction decisions.
This comes after the UK announced on Monday that it would become the first G20 country to force investors to report on their climate risks in line with the Task Force on Climate-related Financial Disclosures (TCFD).
“Many investors are not yet equipped to invest in a decarbonising economy, and some don’t know where to start,” explained Helga Birgden, Mercer's global business leader for responsible investment.
“Our analytics and advice will help investors transition their portfolios to take on the challenges of managing climate risk, in their endeavour to meet return objectives while staying on target for a net-zero outcome.”
Scientists believe that net-zero emissions is required to halt climate change, which means that any emissions are balanced by absorbing an equivalent amount from the atmosphere.
It is also thought that limiting global warming to 1.5°C will require a 45% emissions reduction by 2030, with the new ACT solution promising to help investors construct climate-resilient portfolios on a multi-year time frame.
Mercer is offering the tool to its investment consulting clients worldwide, and will use it to support climate transition strategies across its $304.5bn (£229.6bn) in global assets under management.
“As investors increasingly seek to set net-zero targets and align their portfolios to a 1.5°C global warming outcome, it is vital that they are equipped with the necessary tools and analysis to do so,” said Kate Brett, Mercer's head of responsible investment for Europe.
“The analytics and advice builds on Mercer’s pioneering climate scenario analysis and aims to support investors in setting net-zero targets, outlining a pathway to net zero and measuring their progress as the transition progresses.”
Image credit: iStock
Author: Chris Seekings