The development of investment products that enable investors to cut the carbon in their portfolios without compromising performance is a priority area, according to the first annual report of the $600bn investor group the Portfolio Decarbonisation Coalition (PDC).
Just this week, New York State Comptroller Thomas DiNapoli, discussing his low-carbon index arrangement with Goldman Sachs, told RI of the challenges involved in sourcing opportunities.
Other areas of focus identified in the new report include the strengthening of corporate and investor reporting and the development of portfolio-level metrics to let investors track progress. It also calls for a “better understanding” of the contribution that portfolio decarbonization can make to the goal of a low carbon economy – and the timeframes involved.
PDC was formed in 2014 by the UN United Nations Environment Programme (UNEP) and its Finance Initiative (UNEP FI), Sweden’s AP4, French asset manager Amundi and environmental data body CDP. Just this week Dutch civil service pension fund ABP and Munich-based insurance giant Allianz signed up. Now the initiative has released its first annual report – From Disclosure to Action – featuring member case studies.
The PDC aims to send an “unequivocal message” to policymakers and companies that decarbonisation is a core concern for institutional investors. They can also provide a “countervailing voice” against those opposed to climate change action. Around half of PDC signatories have set formal decarbonisation targets, the report notes – though all are working on performance metrics and taking action.The report also says there is a difference of views among signatories about the definition of decarbonisation – noting that the practice on decarbonisation has “moved ahead of” debates on portfolio measurement and monitoring. It was expected that “greater clarity and consensus around performance tracking and measurement will emerge over time”.
The document also says it’s “too early” to offer a definitive view on the relationship between portfolio decarbonisation and investment performance – although there is a consensus among members about the long-term investment benefits. There was some evidence that decarbonisation had enhanced short-term performance, though these findings should be “treated with caution” given the short timeframes.
The PDC represents a “major turning point on investor action and climate change” reflects Mats Andersson, AP4’s CEO and a driving figure within the PDC, in the report’s foreword. It moves the debate on, he says, from one-off green investments towards a “more holistic and complete” approach where investors align their entire portfolios, across all asset classes.
“Our challenge now is to maintain the momentum: to better understand the variety of decarbonisation approaches and their implications, across asset classes; to encourage more investors to commit to portfolio decarbonisation and to support the delivery of real reductions in greenhouse gas emissions through the concerted action of a critical mass of investors.” Link