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Alongside its headline-grabbing temperature objective, the Paris Agreement sets a goal of “making all financial flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.” In response, many investors are now seeking ‘Paris Alignment’, which is generally interpreted as a reduction of the carbon footprint of their portfolios in line with a Net Zero or similar target.
But this is likely to be a sub-optimal approach, particularly given the eye-watering levels of capital that will be required to transform companies in hard-to-abate industries. Worse, it may run counter to investors’ fiduciary duties to their stakeholders, for example pension fund beneficiaries.
A more rational response is for investors to pursue Paris Resilience, by optimising the (financial) robustness of t…