Some of the world’s largest pension funds and asset managers are drawing up plans for mandatory corporate reporting of climate issues and carbon pricing, among other actions, as outlined on day 8 of COP25 in Madrid. A panel moderated by Sir Nicholas Stern, attracted some of the largest pension funds and asset managers globally including Aviva, the Japanese Government Pension Fund, the Danish Pension Fund PFA, Allianz (also representing the Asset Owners Alliance, members of which commit to reduce carbon emissions of their investment portfolios to net-zero by 2050), the German Central Cooperative Bank and BNPP.
Each was tasked with identifying action required for governments to drive transformative change through finance. Key takeaways called for were:
- Mandatory reporting for companies regarding climate issues (both footprint and risk)
- Clear long-term plans at the regional and national level to get to net-zero by 2050 with broad political consensus
- Carbon pricing and strong calls for an end to fossil fuel subsidies
- Transformative commitments (Aviva commenting that plans to get a COP26 commitment from global pension funds to target 10 percent in green investments by 2030 is just not enough considering the climate risks)
In terms of action, examples include the Japanese Government Pension Fund (the world’s biggest pension fund) making Environmental, social and governance (ESG) a key decision point in its selection of asset managers. The organization is also pushing a change of benchmark indexes that it uses to provide a greater ESG focus. Aviva is looking to embed climate change expertise within debt and equity teams with the objective of backing the right investments, and diverting capital away from those not part of the climate fight. The German Central Cooperative Bank representative provided a series of actionable suggestions, including building sustainable development bond purchasing directly into sovereign bonds to mainstream them quickly, and using FinTech and document standardization to speed up access to green bonds.
Whilst the commitment of business to mitigating climate change is not new, it is clear that global pension funds and other key financial players recognize the gravity of the risks facing the planet if transformative change does not happen in the 2020s. The key takeaway was a call for governments to catch up.