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Climate change is a critical social, environmental, economic, and therefore investment issue. This report details our approach to the risks and opportunities in line with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations. It also offers relevant climate-related information, like the carbon footprint of our portfolios, and our efforts to encourage the companies we invest in to help with the race to zero.
The challenge of reducing emissions, and managing increasingly intense and frequent climate-related impacts in the global economy is complex, with varying implications for different industries, countries and companies. Climate change is also deeply interrelated with other sustainable development challenges, from biodiversity loss, to improving access to energy and other basic services in developing countries. Despite these complexities, the need to rapidly decarbonise the economy and build resilience in communities so they can adapt to climate change is necessary.
Our starting point
For more than 15 years, the foundation of our investment philosophy has been to invest only in high-quality companies that contribute to, and benefit from, sustainable development. In drafting our climate change statement in 2021 and reviewing various climate-focused industry initiatives, it became clear that our starting point is not the same as investors who do not share our history or focus on sustainable investing.
The race to zero
While there has been a significant trend in the industry to adopt ‘net-zero’ targets, generally by 2050, we prefer to think of the challenge as a race to zero, as each tonne of emissions adds to global warming. We also recognise that delivering on other sustainable development challenges – particularly human development in low and middle-income countries – is crucial for achieving a zero-carbon economy.
We recognise that carbon and climate change reporting by companies and investors remains inconsistent, while approaches to achieving genuine abatement remain highly contested. The potential for greenwashing, or well-intended but ultimately ineffectual efforts, is high.
As long as the broader economy remains carbon-intensive, our portfolios will remain relatively low carbon in comparison, but they will not be able to achieve our goal of zero emissions due to the interconnectedness with the global economy. However, as the broader economy reduces emissions at the speed and scale required to keep warming well below 2oC, the gap between our portfolios and the broader market should close, even as our footprint continues to fall. Real success would see the market catching up to us in the race to zero.
* Carbon metrics stated are sourced from Stewart Investors and MSCI as at 31 December 2021. Company contributions to climate change solutions assessed against Project Drawdown’s climate solutions.