The Transition Pathway Initiative – managing climate change risk

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In January 2017 we witnessed a breakthrough event for responsible investment – asset owners and asset managers came together to take collective responsibility for managing climate change risk. The Transition Pathway Initiative (TPI) was officially launched.

The initiative has been led by the Church of England’s National Investing Bodies and the Environment Agency Pension Fund, in partnership with the Grantham Research Institute at the London School of Economics. The initiative is backed by several asset owners and asset managers, with combined global assets of over £2 trillion. BNP Paribas Asset Management is delighted to be one of the asset management firms involved in this initiative.

What is the Transition Pathway Initiative?

Under the 2015 Paris Agreement, countries commit to limiting global temperatures to well below 2°C higher than pre-industrial levels. The TPI aims to define what the transition to a low carbon economy looks like for companies in high-impact sectors such as oil and gas, mining, and electricity. This will then enable asset owners to make informed judgements about how companies with the biggest impact on climate change are adapting their business models to prepare for the transition to a low carbon economy.

The initiative helps investors to:

  • Evaluate the quality of companies’ management of the greenhouse gas emissions associated with their business (‘Management Quality’).
  • Evaluate how companies’ planned or expected future carbon performance compares to international targets and national pledges made as part of the Paris Agreement 2 (‘Carbon Performance’)
  • Report this information publicly through this online tool

The intention is to enable investors to evaluate how companies are aligning their business models with the emission reduction targets being set by the Accord. The tool is not intended to automate disinvestment, but to inform investment decisions. It has been designed to improve the quality of information available and to serve as a platform for improved engagement between investors and companies.

How can it be used?

Investors can use the Transition Pathway Initiative to help inform their:

  • Investment processes, for example by strengthening the emphasis on how climate change affects their investment principles and strategy.
  • Investment decision-making, for example to assess a company’s quality of management, or its exposure to low-carbon transition-related risks and opportunities.
  • Engagement activities, for example through setting and monitoring engagement goals for their internal teams or external service providers
  • Proxy voting decisions, by providing investors with an easy tool to use and understand which identifies the types of disclosure required from companies, and where they fall short, relating to low-carbon transition.

Bringing responsible investing to life

The TPI helps bring to life the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). It builds on the work we, alongside our investor homologues, have been doing for over a decade at the Institutional Investors Group on Climate Change. It provides a practical, publicly accessible tool to help assess companies’ progress on the transition to a low-carbon economy – and in turn helps investors to better understand the potential impact on their portfolios. What’s more, the TPI tool is free!

The TPI demonstrates that, by working together, asset owners and asset managers can genuinely make a difference. Those involved in the initiative have not just acknowledged the need for investing in a more sustainable future, they have taken responsibility. They have acted. We hope many others will follow a similar path.

“BNP Paribas Asset Management is very pleased to be among the asset managers that actively support the Transition Pathway Initiative. It is important for asset managers to partner with asset owners, as by doing so we are able to send a unified message to companies regarding our expectations of them as they position themselves for the transition to a low-carbon economy. It also sends a clear signal to the wider world that we are actively engaging with companies to help them to work towards greater action, as well as disclosure of transition risks, in order that their shareholders can make fully informed investment decisions.”  – Frédéric Janbon, CEO, BNP Paribas Asset Management

Helena Vines Fiestas

Head of Sustainability Research

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