Fiduciaries are learning from each other how to manage climate risk

For institutional asset owners, fulfilling fiduciary responsibilities to their stakeholders means constantly assessing and responding to current and future risks that can impact their investment portfolios, including climate risk.

Indeed, as long-term institutional investors, asset owners would be irresponsible to not consider how changes in the environment and adverse climate events impact their portfolios. And they are not alone. Climate risks are increasingly driving business and operational decisions across all sectors. Just recently, for example, the largest homeowner insurer in the U.S., made the decision to withdraw from new business in the State of California. Why walk away from a market that represents America’s most populus state and one of the world’s largest economies? Because they determined that the risk of catastrophic environmental exposure there is too high and widespread to effectively price insurance coverage. This follows similar moves by insurers in the State of Florida due to increased damage and flooding from severe and more frequent hurricanes.?

To exercise their freedom to invest responsibly, asset owners need to have the data, the tools, and the methodologies to properly assess climate risk and to integrate it into their individual investment decision-making. Here’s where collaboration proves essential and why so many of the world’s leading institutional asset owners, including foundations, endowments, pension funds and insurance companies, have joined the Net Zero Asset Owners Alliance (NZAOA), convened by United Nations Environment Programme Finance Initiative (UNEP FI) and Principals for Responsible Investment (PRI).

As part of the NZAOA, members contribute to and benefit from industry-leading decarbonization methodologies and opportunities to impactfully raise the need for comprehensive climate reporting, for use by corporates and policymakers alike. Although each NZAOA member manages their portfolio independently, collaboration enables the information-sharing needed to advance the basics of investor climate impact decision-making.?This collaboration has the potential to be catalytic in helping to standardize emissions data methodologies and in turn help mitigate climate risk around the world.

An article posted on NZAOA website explains further why collaboration is key to developing high-quality and trusted data measurement and reporting standards for decarbonizing investment portfolios. It reflects NZAOA’s “open source” approach to sharing our experience and publishing our pioneering work, to benefit others seeking to mitigate the risk of environmental damage in their own operations, for the sake of their stakeholders.

I invite you to read the article and learn more about the NZAOA’s work: Fulfilling individual fiduciary responsibilities requires a collaborative response to climate risk – United Nations Environment – Finance Initiative (unepfi.org).