How investors take action

In this section, Novethic outlines what investors do to tackle climate change. Carbon footprint and other different forms of investor actions are also explained.

CLIMATE CHANGE DRIVES THE FINANCIAL WORLD

CLIMATE CHANGE DRIVES THE FINANCIAL WORLD

Since the New York Climate Summit in October 2014, investors have been mobilizing to tackle climate change. Today, more than 1,100 investors, mainly ethical investors, pension funds or insurance companies have taken a firm stand regarding this issue. The main examples are AXA, the largest insurance provider in the world, and Norway’s Government Pension Fund.
Since then, Novethic’s Research Centre has been analyzing the extraordinary mobilization of investors against climate change. It has assembled a select sample group of international investors whose engagements and initiatives have been closely examined in a study already updated three times, last time in October 2015.

Click here to see Novethic's report on investor pledges to tackle climate change

FIRST STEP: MEASURING THE EXPOSURE OF INVESTMENTS TO CLIMATE RISK

FIRST STEP: MEASURING THE EXPOSURE OF INVESTMENTS TO CLIMATE RISK

In order to take action, investors need to know how their investments are exposed to climate risk, notably how high the carbon emissions of their assets are. There are two approaches: measurement of emissions (carbon footprint) and assessment of the risk posed by the presence of many carbon-intensive companies in the portfolio (carbon risk exposure).

Carbon footprint: To make this measurement, greenhouse gas emissions of companies in the portfolio are added up according to shareholdings; that is, the carbon intensity of the companies in relation to their weight in the portfolio. The footprint of a portfolio can be compared with its benchmark or with the change in the portfolio’s carbon footprint over time. At the end of the day, investors should be able to envisage comparing their carbon footprint with an emissions level compatible with a given climate scenario (the 2°C limit, for example).

Carbon risk exposure: The aim of this measure is to assess the portfolio's exposure to carbon-intensive companies, starting with fossil fuel producers. There method takes into account both the importance of the extractive sector in the portfolio and information from companies on their future investments to exploit oil and gas reserves. The target is to compute the portfolio’s exposure to stranded assets risk.

SECOND STEP: TAKING ACTION

SECOND STEP: TAKING ACTION

Once an investor has identified its carbon footprint and/or carbon risk exposure, he/she could take different forms of action to decarbonize his/her portfolio: