The Investment Association has published a Climate Change Position Paper (the "Paper") which represents the stance of the investment management industry on climate change. The Paper sets out the industry's commitment to climate action, including working with the UK Government to accelerate change and bolster the UK's position as a global leader in sustainable finance.
The Paper notes three key points in relation to the role of the investment managers when tackling climate change:
- Duty to act in the best interests of their clients: Investment managers must act in the best interests of their client and, therefore, efforts to address climate risk are one of the most important actions they can take in this regard.
- Assisting clients to make informed decisions: Investment managers' clients (both retail savers and institutional asset owners) are increasingly asking for information on climate change and for products to deliver on their particular investment goals. Therefore, in addition to product development, investment managers need to provide clients with the necessary information to make informed decisions on whether investments align with their sustainability preferences and strategies.
- Role as an employer: As well as their role in advising investors, investment managers are businesses and employers and must, therefore, look at their own corporate operations and work towards carbon neutrality.
With this position paper, the Investment Association has again thrown its weight behind the push for better engagement and reporting on environmental issues, and set out its expectations of asset managers in driving effective stewardship.
The Investment Association calls for the Government to amend company law to require all large UK incorporated companies (public and private) to report in line with the recommendations of the Task Force on Climate-related Financial Disclosures ("TCFD") (for more on the Government's roadmap for transition to fully aligned TCFD disclosure, see our client note) .
The Investment Association welcomes the FCA's proposal that all commercial companies with a UK premium listing report in line with TCFD with effect from 1 January 2021 and its previous expectation that all listed companies should report in line with the TCFD by 2022.
In January 2020, the Investment Association set the industry's expectation that FTSE-listed companies should explain in their annual report the impact climate change will have on their business model and how these risks are being measured and managed. As previously noted, these disclosures should be the result of meaningful action by the companies to address the impact of climate change on their business model and strategy. IVIS, the Investment Association's Institutional Voting Information Service, is tracking companies' progress and investment managers want to see significant movement towards the above expectation that all listed companies should be reporting in line with TCFD by 2022. The Paper notes that while progress has been made, only 53% of FTSE 100 companies reported on all four pillars of TCFD (governance, strategy, risk management and metrics and targets) this year. The IA shall set shareholder priorities for the 2021 AGM season, with the expectation that companies will improve their reporting to set out the impact of climate change on strategy and capital allocation process.
Climate change commitments
The Paper includes the following seven commitments from the industry in respect of its climate change commitments:
- Engagement with investee companies on climate-related disclosures: The Investment Association commits to helping its members continue to engage with listed companies to improve the quality of their climate change disclosures.
- Working with pension fund clients to help them meet climate-related disclosure requirements: The Investment Association members commit to working with pension funds on their own climate-related disclosures, including in relation to data quality and consistency.
- Development of investment managers' TCFD disclosures: The Investment Association will support its members to develop a full set of TCFD disclosures at entity level in the 2021/22 reporting round.
- Supporting improvement of sustainability-related disclosures at fund-level: The Investment Association is committed to helping its members to improve their sustainablity-related disclosures at fund-level, finding the best way forward for clients at present and considering the practical implications of providing disclosures that are useful to investors and based on robust investment data. This includes the development of best practice guidance on how firms should communicate the responsible investment characteristics of products to investors, supporting members with the practical implementation of forthcoming regulatory requirements and helping members develop TCFD disclosures at portfolio level.
- Link with advanced initiatives to support Disclosure of Paris-Alignment of Portfolios: The Investment Association is looking into where it can learn from, build on and develop work already undertaken in the alignment of portofolios with the aims of the Paris Agreement.
- Supporting the work of the FCA-PRA Climate Financial Risk Forum ("CFRF"): The Investment Association is actively supporting the CFRF and is committed to sharing knowledge from the CFRF handbook with its members.
- Supporting the creation of investable opportunities: The Investment Association is committed to working together with the UK Government to create investable opportunities, including asking the Government to fulfil its commitment to issue its first sovereign green bond in 2021 and to ensure the requisite policy interventions are brought in to faciliate the transition to net zero for different sectors by 2050.
For more information on these initiatives, please do get in touch.