Climate-aligned investing

Climate change continues to be a core issue for Greenbank. COP261 will be hosted in the UK in 2021 and is set to be a landmark gathering. It will provide the first opportunity for countries' nationally determined contributions (NDCs) to be reviewed and strengthened since the Paris Agreement was reached at COP21 in 2015.

External awareness of the issue continued to grow throughout 2019, with both the Extinction Rebellion and school strike movements gaining momentum in their efforts to force  governments to take action to avoid the worst consequences of climate change.
 
The Intergovernmental Panel on Climate Change’s (IPCC) special report in October 2018 highlighted the need to keep global warming below 1.5°C above pre-industrial levels in order to avoid significant environmental and economic costs. With current global policies and targets projected to result in over 3°C of warming, this ambition gap needs to close.
 
1 Conference of the Parties, known as COP, is the decision-making body responsible for monitoring and reviewing the implementation of the United Nations Framework Convention on Climate Change. https://youth.wmo.int/en/content/what-conference-parties-united-nations-framework-convention-climate-change 

Climate sustainable assets and 1.5°C investing

The transition to the low-carbon economy has already begun: aligning a portfolio to both support and benefit from this transition should help to insulate it from medium and long-term risks and position it to capitalise on long-term opportunities. In order to limit warming to 1.5°C, global carbon emissions will need to fall dramatically by 2030 and achieve net zero by 2050.

At Greenbank, we work with clients to provide practical ways to align to a 1.5°C pathway:

  • Assess the exposure of investment portfolios and their holdings to climate risk. We are able to offer innovative analytics for clients; see example outputs on page 21.
  • Reduce exposure to industries whose activities are misaligned with a low-carbon pathway. For example, companies involved in coal, oil or natural gas extraction or those operating coal-fired power plants with unabated emissions. Reducing exposure may involve full, partial or targeted divestment and decisions should reflect an organisation’s current climate impacts in addition to whether it has a credible transition strategy with evidence of it being implemented effectively.
  • Increase exposure to ‘climate sustainable assets’ that we define as investments with a major link to climate mitigation technologies or renewable/low-carbon energy development (directly supporting a low-carbon transition). This also encompasses investments indirectly supporting a low-carbon economy, for example organisations which are reducing their own annual greenhouse gas emissions, are committed to sourcing increasing amounts of renewable energy or those that provide technologies, products or services that facilitate the transition.
  • Engage with companies and policymakers to encourage actions consistent with a low-carbon transition. We are participants in a project called the Paris Aligned Investment Initiative, led by the IIGCC2, focused on agreeing a common framework for different asset classes to align with a 1.5°C pathway. We are also engaging with companies to establish science-based targets, where they commit to reducing annual GHG emissions, proportionately in line with the level of decarbonisation required to keep the global temperature increase below 1.5°C.

2 The Institutional Investors Group on Climate Change 

The carbon footprint for Greenbank’s equity holdings

Greenbank confirms its commitment to the Montreal Carbon Pledge3 annually by publishing an updated carbon footprint of the equity holdings within all the investment portfolios it manages4. We believe it is important to understand and be transparent about the climate impacts associated with investment portfolios, so that risks and opportunities can be identified and managed appropriately.


Our analysis covers the whole of the equity part of the investment portfolios we manage. We continue to work to increase the scope of the tool by also including fixed-income investments and managed funds, using a weighted average carbon intensity method rather than share ownership. This measures a portfolio’s exposure to carbon-intensive companies based on CO2 emissions per million pounds of sales, adjusted according to each holding’s weighting within a portfolio.

3 The Pledge is supported by the PRI and the UN Environment Programme Finance Initiative. By signing it, investors commit to measuring and publicly disclosing the carbon footprint of their investment portfolios on an annual basis.
4 https://www.rathbonegreenbank.com/insight/portfolio-carbonfootprinting-and-assessing-climate-risk