Portfolio alignment is a hot topic and key area of focus for the TCFD review and COP26 private finance team. But what is it really telling us and how will it influence investment decisions? This session looked at the unintended consequences of the portfolio alignment metric, and how investors can incorporate forward-looking views into their analysis and how it affects investment decisions.
Eva Cairns is the Head of Climate Change Strategy at Aberdeen Standard Investments and responsible for leading ASI’s climate change agenda to ensure a consistent and rigorous climate change approach is applied to our investments, solutions and communications. Eva leads the internal cross-asset class Climate Change Strategy Group and is responsible for TCFD reporting. She has published a number of climate related papers including ‘Investing in a changing climate’, ‘Climate change – Our approach Investments’ and more recently, she co-authored ASI’s climate scenario analysis white paper. Eva joined Standard Life Investments in 2010 from Halcrow Group Ltd (now CH2M Hill), a global engineering consultancy, where she worked as an Economist focused on environmental and socio-economic impact assessment of energy and transport projects. Eva graduated with an MSc in Economics with Distinction from the University of Edinburgh where her dissertation focused on the social cost of carbon.
Dominic Tighe is a policy advisor in the COP26 Private Finance Hub at HMT. This is small team of people supporting Mark Carney in a mission to build a private finance system for net zero, and make climate change a part of every financial decision, in the lead up to the COP26 summit in Glasgow.
Since joining early this year, Tighe has advanced the work of the hub on portfolio alignment metrics, and is a co-author of the TCFD technical paper on portfolio alignment metrics.
He is now playing a leading role in the engagement around the work, coordinating talks with industry, academia, policy makers and industry. He has spoken at numerous events to promote the use of alignment metrics including at the World Bank, UNFCC and NGFS.
Prior to joining the Hub, Tighe worked at the Bank of England, initially in data analytics and later on the policy around ‘too big to fail’. He completed an MSc in Central Banking & Financial Regulation from Warwick Business School during his time at the Bank of England, with his dissertation research on the green bond market.
Adam is the director of ethics and engagement for the Church of England Pensions Board, as well as co-chair of the Transition Pathway Initiative and a board member of the Institutional Investors Group on Climate Change, (IIGCC). He is also the co-lead, on behalf of CA100+, for engagement with Royal Dutch Shell that led to the 2018 joint statement on climate targets agreed between Shell and institutional investors.
He founded and now co-chairs the Transition Pathway Initiative (TPI) an asset owner-led and asset manager-supported global initiative which assesses companies’ preparedness for the transition to the low carbon economy (and publishes this through the London School of Economics). He is also the lead for the Church of England on the Mining and Faith Reflections Initiative (MFRI) a forum that convenes dialogue between mining company CEO’s and Church leaders.
Matthews also serves as a member of the Royal College of Physicians investment advisory board and on the Pension and Lifetime Savings Association (PLSA) stewardship advisory group.
White is responsible for the content across all Conexus Financial’s institutional media and events. She is responsible for directing the bi-annual Fiduciary Investors Symposium which challenges global investors on investment best practice and aims to place the responsibilities of investors in wider societal, and political contexts, as well as promote the long-term stability of markets and sustainable retirement incomes. She is the editor of www.top1000funds.com, the online news and analysis site for the world’s largest institutional investors. White has been an investment journalist for more than 20 years and has edited industry journals including Investment & Technology, Investor Weekly and MasterFunds Quarterly. She was previously editorial director of InvestorInfo and has worked as a freelance journalist for the Australian Financial Review, CFO, Asset and Asia Asset Management. She has a Bachelor of Economics from Sydney University and a Master of Arts in Journalism from the University of Technology, Sydney. She was previously a columnist for the Canadian publication, Corporate Knights, which is distributed by the Globe and Mail and The Washington Post. White is currently a fellow in the Finance Leaders Fellowship at the Aspen Institute. The two-year program consists of 22 fellows and seeks to develop the next generation of responsible, community-spirited leaders in the global finance industry.
- The Task Force on Climate-related Financial Disclosures (TCFD) has been looking more closely at the use of forward-looking climate metrics by financial markets.
- Although many investors support the principle of portfolio alignment, investors argue measuring and implementing such alignment remains a work in progress. Adopting portfolio alignment metrics could have undesirable consequences for asset owners around fiduciary duty and costs.
- Portfolio alignment can steer investors away from investing in companies that may still be carbon intensive but are on a pathway to reduce those emissions.
- Alignment metrics still have challenges around data and regional differences, comparability and transparency.
- Temperature aligned metrics will become credible and decision-useful and will have a role.
- Metrics could incentivise actions like “washing assets out” of portfolios, contrary to responsible investment which means holding difficult assets and working with companies on credible transition paths.
- Assets owners want “forward looking metrics” that measure the ambition of companies and distinguish between leaders and laggards within sectors, and which measure the ambition of companies.
- The methodology makes clear that benchmarks should take account of different sectors and geographies, allowing investors to drive engagement and tilt portfolios.
- Looking ahead to COP, a key investor concern is that the policy frameworks are not going to appear out of the conference; zero pledges are not possible with a policy framework.