Fund Solutions

IPR Tool Helps Investors Track Climate Policy Impact on Portfolio 

Policy scenarios also available via PACTA, incorporated into new Transition Disruption Metric.

The Inevitable Policy Response (IPR) has launched a new database to help investors monitor the impact of global climate policy changes on the value of their portfolios. Users will also be able to use the tool to assess the alignment of their portfolios with IPR’s climate scenarios.

The database incorporates over 500,000 data points, which can be used for a range of climate risk and alignment applications, spanning all major jurisdictions and economic sector forecasts up to 2050. It has a particular focus on energy and land use as the two key aspects of the climate change transition.

In October, IPR published two new climate scenarios by the consortium: the 2021 Forecast Policy Scenario (FPS), which outlines likely climate policy developments through to 2025 and the associated real economy impacts, and the 2021 1.5°C Required Policy Scenario (RPS), which outlines the additional policy developments required to ensure a 1.5°C trajectory.

The new database will provide asset owners and managers with the granularity they need to make strategic asset allocation and portfolio construction decisions aligned with FPS and RPS predictions. They can also adjust their corporate and policy engagement strategies accordingly.

It further “opens up new opportunities” for asset managers in product development, while providing a baseline for asset owners to use to make sure their asset managers are “using the most credible and the most likely [policy] assumptions available”, IPR said.

The IPR database together with its forecasts will create a “valuable foundation for investors to build on their climate alignment strategies, create value and hedge risks as the transition gathers pace”, said Fiona Reynolds, Principles for Responsible Investment (PRI) CEO.

Supported by the PRI, the IPR is a climate forecasting consortium which aims to help investors protect their portfolios from climate risks. Research is led by Vivid Economics and Energy Transition Advisors.

Collaborating with 2DII

The IPR FPS and RPS scenarios are available on the Transition Monitor Platform, which is part of the Paris Agreement Capital Transition Assessment (PACTA) portfolio analysis tool developed by 2° Investing Initiative (2DII), an independent non-profit thinktank, and backed by the PRI.

PACTA measures financial portfolios’ alignment with various climate scenarios that are consistent with the goals of the Paris Agreement. Investors will now be able to use PACTA to measure their alignment with IPR scenarios across key climate-relevant sectors.

PACTA has also launched a new Transition Disruption Metric (TDM) that scores future potential portfolio disruption under the IPR FPS up until 2030.

It works by “comparing the pace of the transition in [an investor’s] portfolio for the next few years with the pace that will be required under forecast policy action post-2025″, said Maarten Vleeshhouwer, Head of PACTA at 2DII.

The IPR database was built with input from the IPR consortium. It was modelled by business management consultancy Vivid Economics, assisted by partners including BlackRock, BNP Paribas Asset Management and Fitch Ratings.

The launch follows IPR’s 2021 predictions earlier this year, which outlined 10 key climate-related policies over eight climate risks which policymakers globally will be focused on between now and 2025. Carbon pricing was cited as a leading priority.

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