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A key challenge to assessing long-term and climate-related risks involves what Mark Carney, the Governor of the Bank of England, called “the tragedy of the horizon”. Long-term liabilities and assets face a ‘valley of death’ in terms of the time horizons underlying capital allocation decisions in financial markets. As a response, we initiated the ‘Tragedy of the Horizon’ research program to quantify time horizons in the investment chain and elevate long-term risk assessments in financial markets.
The Aiming for Impact project, funded by the KR Foundation and the French Ministry of the Environment (ADEME), centres on the impact of investment-related climate actions. So far, most of these actions have focused on requesting better disclosure of company activities, and are likely to have only marginal impact on investment plans.
In 2016, we launched the SEI Metrics Project, which provides free, open-source portfolio testing for listed equity portfolios. Over the course of the project, more than 200 institutional investors around the world signed up to test their portfolios, including large asset managers, pension funds, insurance companies, banks, and sovereign wealth funds. Since its launch, more than 2,000 portfolios have been tested for 2°C alignment with more than $3 trillion in assets under management.
2016 saw the official launch of the Energy Transition (ET) Risk project , a EUR2.2 million project involving S&P Market Intelligence, S&P Dow Jones Indices, Oxford University, Kepler-Cheuvreux, CO-Firm, I4CE, and the Carbon Tracker Initiative. The project developed a toolbox for energy transition risk assessment – reference scenarios for financial analysis including 2°C scenario analysis, ET risk data, as well as financial models. The project was funded by the European Commission H2020 programme.
The International Award on Investor Climate-related Disclosures (2° Invest Award) is an initiative organized by the French Ministry of Environment, Energy and the Sea, the Ministry of Finance and Economy and the 2° Investing Initiative. The award is designed to enable the fostering of innovation and promotion of existing best-practices in climate disclosure aligned with the requirements of Article 173-VI of the Energy Transition for Green Growth Law. […]
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November 2017: The ISO 14097 “Framework and principles for assessing and reporting investments and financing activities related to climate change,” was proposed by the French standardization body AFNOR and approved by ballot in January 2017. The convenors are Stan Dupré (CEO of 2° Investing Initiative – commissioned by AFNOR) and Massamba Thioye (UNFCCC secretariat), with AFNOR acting as secretariat.
October 2017: Our latest report of the PACTA project “Out of the Fog: Quantifiying the alignment of Swiss pension funds and insurances with the Paris Agreement” analyses Swiss pension funds and insurances and was done in cooperation with the Swiss Federal Office for the Environment (FOEN) and the State Secretariat for International Financial Matters (SIF).
October 2017: Retail investors hold significant amounts of assets and are therefore an important decision maker for the allocation of financial resources. Mobilising retail investors to take investment decisions in line with international climate goals could be an important factor in closing the funding gap to meet emission reduction goals. The report’s objective is to formulate recommendations to reform the investment advice in line with Europe’s long-term funding needs. It is divided in three parts. The first part aims to provide a detailed analysis of the status quo. It starts by setting out the current demand for green savings products according to existing surveys. It then analyses in detail the prevalent structure of retail investment products with the aim to see if the current process is able to capture the demand. It concludes with an overview of how current trends of automatization and increasing use of Fintech are likely to impact investment advice processes. The second part provides a regulatory analysis of the MIFID II directive as well as the new PRIIPS regulation in order to assess the potential impacts that this new regulatory environment may have. The third part provides recommendations to public and private sectorstakeholders on how to better take into account the non-financial investment objectives in investment advice.
September 2017: This report seeks to explore options around integrating transition risk into mainstream stress-test scenarios used by financial supervisory authorities. It analyses options for integration into macroecononomic, asset-class and sector risk factors. It focuses in particular around the implications of considering the shock described in the “too late, too sudden” paper of the ESRB advisory scientific board (2016).
September 2017: The Carbon Boomerang report analyses the nature of claims within each category, along with an overview of relevant cases. It also provides specific, additional analysis of securities fraud and misleading disclosure laws following the recent release of the Final Recommendations of the G20 Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (‘TCFD’). The Report is part of a broader research effort – the ET Risk research consortium – and thus focuses on the intersection of litigation risk and the energy transition. It does not, therefore, purport to cover other categories of climate litigation that relate to the physical impacts of climate change, unless those claims are themselves a direct and significant driver of ET policy reform. Companies, their investors and financial services providers should seek to understand each relevant category of claim to enable a diligent assessment of their bearing on risk and value in specific circumstances.