Trade body offers support to asset managers and clients ahead of COP26.
The Investment Association (IA), which represents 250 UK asset managers, has made a seven-point commitment to support the UK’s net zero emissions by 2050 pledge.
“Investment managers have a responsibility to act in the best interests of clients and a major part of this is the generation of long-term returns,” the report outlined. “This requires the consideration of material risks, which include climate-related risks, in investment processes.”
In a new document setting out its position on climate change, the IA has outlined seven commitments to its members, their asset owner clients and other stakeholders, with a view of seeing clear results by COP26 in 2021.
The commitments focus in improving climate-risk disclosures, supporting other industry initiatives and the generation of new investable opportunities.
Improving climate-related disclosures
The IA has committed to supporting asset managers working to improve climate-risk and other sustainability related disclosures at a fund level, helping members engage with listed companies to improve climate-related reporting and supporting pension fund clients looking to meet their climate-risk disclosure requirements.
The lack of transparency around climate –risks to investor returns has dominated industry discussions, fuelling adoption of the recommendations of by the Task Force on Climate-related Financial Disclosures (TCFD). There will be further disclosure requirements for investment managers to contend with, such as the EU’s Sustainable Finance Disclosure Regulation, which the IA has committed to help members navigate.
Chancellor of the Exchequer Rishi Sunak recently announced the UK will be transitioning to mandatory climate-risk disclosures by 2025, meaning UK asset managers need to work with their clients to adhere to incoming guidelines. The largest UK-authorised asset managers in terms of assets under management (AUM) will be subject to the mandate as early as 2022, according to the roadmap published by the UK Joint Government-Regulator TCFD Taskforce.
“This complements our expectation […] that all listed companies should report in line with TCFD by 2022,” the IA added. Smaller firms will become subject to mandatory disclosures from the following year.
“Greater transparency is needed across the financial system to enable all stakeholders, including investment managers, to assess the impact that individual companies have on climate change and how they are responding to UK government ambitions for the UK to be Net Zero by 2050,” the report said.
Supporting industry initiatives
The IA has convened with representatives of other climate-related initiatives that have progressed work on Paris-alignment methodologies and has announced its commitment to sharing valuable findings with its members, so they “can learn from, build on and develop work already undertaken” by the wider industry.
One such initiative is the Climate Financial Risk Forum (CFRF) Handbook, produced by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). The IA hosted a discussion of the findings in July 2020 alongside the Institutional Investors Group on Climate Change (IIGCC) and said it will continue to “actively support the work of the joint FCA-PRA CFRF”.
Creation of investable opportunities
Beyond supporting the implementation of climate-risk disclosures for existing investments and portfolios, the trade body has committed to working more closely with the UK government at a grassroots level in order to enforce more long-term benefits for investors, generating a diverse pool of opportunities.
The IA reiterated the important role investment managers play in the management of investor capital and its allocation in line with ESG values.
“The relationship between asset owners and investment managers is fundamental to driving effective stewardship and a long-term approach to investment,” the document said.