The Paris Agreement and Asset Management: What You Need to Know
The Paris Agreement, adopted in 2015 by 195 nations, is a global effort to combat climate change by reducing greenhouse gas emissions and limiting global temperature increases. While governments are taking steps to reduce emissions, the private sector also has a crucial role to play in achieving the goals of the agreement.
One of the key players in the private sector is the asset management industry. Asset managers oversee trillions of dollars in investments, including in energy and infrastructure projects. As more investors prioritize environmental, social, and governance (ESG) factors in their investment decisions, asset managers are under pressure to ensure their investments align with the Paris Agreement.
Here are some things you need to know about the Paris Agreement and asset management:
1. The Paris Agreement sets ambitious goals for reducing greenhouse gas emissions.
The Paris Agreement aims to limit global temperature increases to well below 2 degrees Celsius above pre-industrial levels and pursue efforts to limit the temperature increase to 1.5 degrees Celsius. To achieve this, countries are expected to submit ambitious targets for reducing their greenhouse gas emissions every five years, starting in 2020.
2. Asset managers are under increasing pressure to align their investments with the Paris Agreement.
Investors are increasingly demanding that their investments align with ESG principles, including climate change. This pressure is coming from pension funds, endowments, and other institutional investors, as well as from individual investors who want their investments to have a positive impact on the environment.
Asset managers must take steps to assess the climate risks of their investments and ensure they align with the goals of the Paris Agreement. This may involve divesting from companies that are heavily involved in fossil fuels or investing in renewable energy projects.
3. There are tools and frameworks to help asset managers align their investments with the Paris Agreement.
Several frameworks and initiatives have been developed to help asset managers assess the climate risks of their investments and align them with the Paris Agreement. These include the Task Force on Climate-related Financial Disclosures (TCFD), the Science Based Targets initiative, and the Paris Agreement Capital Transition Assessment (PACTA) tool.
The TCFD provides guidance on how companies should disclose their climate-related risks and opportunities to investors. The Science Based Targets initiative helps companies set targets for reducing their greenhouse gas emissions in line with the Paris Agreement. The PACTA tool helps asset managers assess the alignment of their investments with the goals of the Paris Agreement.
4. Asset managers have a role to play in influencing the companies they invest in to align with the Paris Agreement.
Asset managers have significant influence over the companies they invest in and can use this influence to encourage them to align with the Paris Agreement. This may involve engaging with company management, voting on shareholder resolutions, or divesting from companies that do not take adequate steps to address climate risks.
In conclusion, the Paris Agreement sets ambitious goals for reducing greenhouse gas emissions, and the asset management industry has a crucial role to play in achieving these goals. Asset managers must assess the climate risks of their investments and ensure they align with the goals of the Paris Agreement. By doing so, they can not only help combat climate change but also meet the increasing demand from investors for ESG-aligned investments.