Collaboration is vital for climate strategy

An essential part of our responsible investment approach is to advocate and help drive change in a wide range of areas, with climate perhaps the highest profile. We recognise that collaboration – with governments, public bodies and across our industry – is vital if we are to make a difference.

We were therefore delighted to be invited to join HM Treasury’s Transition Plan Taskforce (TPT) Asset Management Working Group. The TPT is developing the gold standard for private sector transition plans and we were very keen to help develop those guidelines for the asset management sector. There were three notable areas of interest for us, namely around alignment of requirements for asset owners and asset managers, the just transition narrative and ensuring inclusion of private markets.

Aligning asset owners and asset managers

As the guidelines are expected to bring more structure to the thinking and disclosure around transition plans for all industries, including asset owners and asset managers, we were particularly interested in the alignment of the requirements for those two sets of investors.

We also were keen that elements of the guidelines that are common to asset owners and managers should mirror each other. Some market participants – such as Local Government Pensions Schemes or insurers with an asset manager arm – that are looking to transition their businesses do so both as an asset manager and owner. Divergence in the guidelines could risk stakeholder confusion, by leading entities in a single organisation to use different framing for their joint strategy. Furthermore, sustainability reporting requirements are becoming so onerous that making sure these disclosures are simplified can go a long way to make sure the resources of those entities are deployed for real change.

Just transition

We also contributed to the just transition working group, where an essential contribution was to define the overarching strategic ambition of the transition plans. Previously, companies were asked to address ‘material interdependencies with society’ but the materiality test was not defined. Now guidelines state companies must pursue a transition “in a manner that captures opportunities, avoids adverse impacts for stakeholders and society, and safeguards the natural environment.” We also supported a definition of just transition in line with our work since 2019, and gave detailed feedback to each set of sector-specific guidelines so these address impacts to key stakeholders, workers, communities, supply chain and customers.

Private markets

We were keen to improve the disclosure requirements for private markets such as private equity and real estate. Private markets have a particularly important role to play due to:

• Long-term nature of these investments (illiquidity) -- thus the climate risks can be more material/tangible.
• Large position in portfolio companies (control) -- the opportunities and risk mitigation can be more executable.
• Less transparency and regulatory oversight of these investments – which is why it is important to not exclude this segment.
• The potential for some ‘climate solutions’ to be the initial pursuit of private equity or venture capital.

We feel the inclusion of private assets could serve to future-proof these guidelines as they will continue to evolve as economies advance their ambitions, policies, actions and accountabilities.

More to come

In addition to these three areas, we also shared our own methodology for evaluating climate transition plans for certain sectors, something we started work on in 2022. While we know this is still a work in progress, we found it useful to provide our own experience to help the development of the TPT sector-specific guidelines.

The TPT Secretariat worked tirelessly to publish this guidance for consultation. We would like to recognise those efforts.

Guidelines for seven sectors are currently under consultation. As participants in the development of the guidelines for asset managers, we are encouraging people to respond by 29 December 2023. You can see the guidelines for asset managers, asset owners, banks, electric utilities & power generators, food & beverages, metals & mining, and oil & gas, plus the feedback forms, on the TPT website.

This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.