PLSA AC 2020: Assessment frameworks needed for funds to mitigate climate risk

Funds wishing to mitigate the risks of climate change need to adopt assessment frameworks which incorporate a depth of dedicated tools, according to Aberdeen Standard Investments (ASI) head of ESG and fixed income, Sam Lamb.

Speaking at the PLSA Annual Conference 2020, Lamb said this measure, a step beyond carbon footprinting and climate scenario analysis, would help funds to invest in companies and countries that address the causes of climate change.

She commented that footprinting and climate scenario analysis were “powerful tools” that should be integrated into an investment process, but warned that they “look at the risk from climate change to existing portfolios, they don’t necessarily help identify the companies that are helping to mitigate these risks”.

Lamb explained that ASI’s assessment framework had identified and separated companies into three separate pillars as part of its climate transition investment framework.

These categories are leaders, who typically start from a high carbon emissions perspective or are setting particularly ambitious targets relative to their peers, then adaptors, which are helping to adapt to the physical risks of climate change, and solutions, who are companies which are helping to decarbonise the economy.

As an example, Lamb highlighted Unilever from the ‘leader’ category, with the consumer goods company having been placed into the pillar due to its bold target of reducing absolute emissions by 100 per cent by 2030, comparisons to peers and leadership in areas such as adding carbon footprint labelling to its products.

She added that the company was innovating in a number of ways, such as ensuring that its washing powder “works for shorter washes at lower temperatures” and examining whether they can create ice cream that can “potentially be stored at higher temperatures”.

She also gave examples of company’s which had been declined entry to the framework due to factors such as insufficient planning to address some emissions, lack of disclosures or new projects utilising fossil fuels.

As such Lamb argued that the assessment framework could be used “to build a portfolio consisting of companies and countries that are seeking to address the causes of climate change, and to prepare businesses for the consequences of climate change”.

She continued: “There are opportunities for businesses to build solutions that will help solve some climate problems. These exist along the whole value chain, its not just about electric vehicles, it’s the batteries that go into them or the people who are manufacturing the wind turbines.”

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