ILN launches toolkit to help institutional investors assess decarbonization scenario analysis disclosures
BY Staff | September 18, 2020
The Investor Leadership Network has published a new report that includes practical tools to help investors understand and assess companies’ climate-related scenario analysis disclosures.
Investors can use decarbonization scenario analysis to help understand transition risk and how emissions reductions will impact specific sectors and companies, noted the report. “While climate scenario analysis is key to understanding resiliency, the ILN recognizes that it is a relatively recent practice for many companies and that conducting and evaluating analyses present challenges for many organizations,” it said.
“To address some of these challenges, the report provides a sector-level 1.5°C scenario aligned with the Paris Agreement and a structured approach to help investors evaluate corporate scenario analysis disclosures. The aim is to increase the maturity and standardization of the climate data landscape, drive more effective climate-related engagement between companies and investors and, ultimately, improve climate resiliency.”
On a practical level, the report put forward three core elements required in mature Paris Agreement-aligned scenario analysis for corporations and issuers: scenario transparency and credibility; translation to sector impact; and financial and strategic implications. The ILN suggested questions that investors can use to engage with issuers on these topics.
Overall, while the investment community has made progress toward recognizing climate risk, the report highlighted that investors must continue to advocate for more transparency, standardization and comparability in reporting, enhance institutional understanding of climate risk, support regulation that enables an orderly transition to the low-carbon economy and engage with portfolio companies on climate change mitigation.
“The world must take bold, well-planned action now,” the report said. “Without steep and rapid reductions in carbon emissions, climate risks will rise over the next decade, leading to catastrophic and irreversible changes. That said, decarbonization efforts that are too abrupt would inflict significant socioeconomic harm. Moving too slowly or too quickly would cause people and economies to suffer and the poorest people and countries would be most vulnerable.”
The ILN’s membership includes many Canadian pension funds, including the Alberta Investment Management Corp., the Caisse de dépôt et placement du Québec, the Canada Pension Plan Investment Board, the Ontario Municipal Employees Retirement System, the Ontario Teachers’ Pension Plan, the OPSEU Pension Trust and the Public Sector Pension Investment Board.
“Creating an ecosystem of stronger climate-related disclosures and recognition of climate risk requires close collaboration between investors, companies across sectors and regulators,” said Amy Hepburn, chief executive officer of the ILN Secretariat, in a press release. “As institutional investors managing over US$5 trillion in assets around the world, ILN members are committed to supporting the ongoing efforts of investors and companies in their goal to fight climate change.”