At the Investor Summit on Climate Risk & Energy Solutions held at the United Nations in New York in January 2012, the world’s largest investors issued guidelines detailing their expectations of how companies should approach responding to climate change. The guidelines, entitled “Institutional Investors’ Expectations of Corporate Climate Risk Management”, provide a unified global investor voice on the issue for the first time in response to concerns about the impact of climate change on their investments.
Co-ordinated by three leading investor groups on climate change, the US-based Investor Network on Climate Risk (INCR), the European Institutional Investors Group on Climate Change (IIGCC) and the Investors Group on Climate Change (IGCC) in Australia and New Zealand, the document outlines seven steps investors expect companies to take to minimize the risks and maximize the opportunities presented by climate change and climate policy:
- Governance. Clearly define board and senior management responsibilities and accountability processes for managing climate change risks and opportunities.
- Strategy. Integrate the management of climate change risks and opportunities into the company’s business strategy.
- Goals. Make commitments to mitigate climate change risks: define key performance metrics and set quantified and time-bound goals to improve energy efficiency and reduce greenhouse gas emissions in a cost-effective manner; and set goals to address vulnerabilities to climate change.
- Implementation. Make a systematic review of cost-effective opportunities to improve energy efficiency, reduce emissions, utilize renewable energy and adapt to climate change impacts. Where relevant, integrate climate change considerations into research and development, product design, procurement and supply chains.
- Emissions inventories. Prepare and report comprehensive inventories of greenhouse gas emissions; data should be presented to allow trends in performance to be assessed and it should include projections of likely changes in future emissions.
- Disclosure. Disclose and integrate into annual reports and financial filings, the company’s view of and response to its material climate change risks and opportunities, including those arising from carbon regulations and physical climate change risks.
- Public policy. Engage with public policy makers and other stakeholders in support of effective policy measures to mitigate climate change risks. Ensure there is board oversight and transparency about the company’s lobbying activity and political expenditures on this topic.
In addition, the guidelines set out steps that investors will take in the following areas: analysis, inquiry, monitoring, engagement, collaboration and public policy. By moving beyond disclosure and clearly outlining the areas in which investors expect to see companies take action, the guidelines provide a platform from which investors can monitor the performance of companies and engage with them to encourage positive steps on climate change. Investors are already taking action by monitoring alignment with their expectations through initiatives such as the Carbon Disclosure Project, and collaborating with companies through investor networks and the UN Principles for Responsible Investment. This group of investors considers the guidelines to be of particular importance to companies in carbon-intensive sectors, and those who have not have adopted carbon reduction targets or a systematic approach to managing climate change risks.