PI Partnership – M&G Investments
When it comes to lending enough weight to the management of climate risks, an important step is disclosure. The Task- force for Climate-related Financial Disclo- sures (TCFD) has developed a framework for consistent climate-related financial risk disclosures, upgrading the impor- tance of climate reporting by requiring its integration within financial accounts. We also want to see ambitious targets and metrics to ensure companies make tangi- ble progress towards mitigating risks. Another vital step is linking executive remuneration to climate-related goals. Rewarding progress and aligning incen- tives makes them more likely to be achieved.
Investors are right to support companies that take steps towards combatting cli- mate change, but it is also right to expect material progress. If companies fail to act, investors have a responsibility to use all tools at their disposal.
The threat of divestment can be effective, but it is no panacea. Actively using owner- ship and stewardship as instruments – exerting pressure alongside other share- holders on companies to decarbonise or even make radical changes to their busi- ness model – can be more powerful and effective over the longer term.
Playing a part in the solution The environmental risks of climate inac- tion are evident. Where companies do not act, they will not only expose themselves – and their investors – to financial losses, but they will miss opportunities for suc- cess that lie in tackling this challenge.
Transitioning existing investment portfo- lios will play a critical role, but investment in climate solutions will also be necessary if we are to effectively curb climate change. With growing recognition of the urgency of the challenge, from governments and investors alike, there are obvious opportu- nities for companies that can offer solu- tions to tackle climate change. Where companies can tap into trends like rising demand for green electricity, their shareholders can aspire to achieve sus- tainable financial returns and contribute to a demonstrably positive impact for the planet and its people.
The power of leadership We believe there are opportunities for investors to channel more capital to com- panies that are having a direct positive impact in the fight against climate change and are actively accelerating the shift to a low-carbon economy. This includes those involved in the pro- duction of renewable electricity, as well as those whose solutions increase energy efficiency and promote circular models. These companies might be ‘pioneers’ – whose products or services have a trans- formational effect on combatting climate change – ‘enablers’ – which provide the tools for others to deliver climate solu- tions – or ‘leaders’.
Leading companies which spearhead and mainstream sustainability in their sectors can deliver considerable positive impact given their clout and the power of influence.
For Investment Professionals only
NET ZERO INVESTMENT FRAMEWORK
The Net Zero Investment Frame- work provides a practical blueprint for investors to maximise the contri- bution they make in tackling climate change and achieving net zero car- bon emissions globally by 2050. The framework is the first major out- put of the Institutional Investors Group on Climate Change’s (IIGCC) Paris Aligned Investment Initiative (PAII). The IIGCC has more than 240 members, including M&G, with more than €33trn (£29trn) in combined assets under management. The PAII looks at how investors can align their portfolios to the goal of limiting global warming to no more than 1.5°C.
M&G Investments has been part of the PAII since the start of the initia- tive in 2019. As part of our ongoing commitment on climate action, we have committed to reach net zero carbon emissions on our total book of assets under management and administration by 2050, in line with the Paris Agreement and the UK government’s target. Read our Approach to Climate Change:
www.mandg.com/investments/ institutional/en-gb/about-us
For Investment Professionals only. This article reflects M&G’s present opinions reflecting current market conditions. They are subject to change without notice and involve a number of assumptions which may not prove valid. Past performance is not a guide to future performance. The distribution of this article does not constitute an offer or solicitation. It has been written for informational and edu- cational purposes only and should not be considered as investment advice or as a recommendation of any security, strategy or investment product. Reference in this document to individual companies is included solely for the purpose of illustration and should not be construed as a recommendation to buy or sell the same. Information given in this document has been obtained from, or based upon, sources believed by us to be reliable and accurate although M&G does not accept liability for the accuracy of the contents. The services and products provided by M&G Investment Management Limited are available only to investors who come within the category of the Professional Client as defined in the Financial Conduct Authority’s Handbook. Issued by M&G Investment Management Limited (unless stated otherwise), registered in England and Wales under number 936683 with its registered office at 10 Fenchurch Avenue, London EC3M 5AG. M&G Investment Management Limited is authorised and regulated by the Financial Conduct Authority.
Issue 100 | February 2021 | portfolio institutional | 41
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