London School of Economics: Exploring corporate climate risk and low-carbon investment

In response to climate change, the world is starting to transition to low-carbon economies. In tandem, institutional investors have been considering the implications of transition for their portfolios, worth in aggregate over £60 trillion. The Transition Pathway Initiative (TPI) and the Grantham Research Institute at LSE are providing valuable information to investors on companies’ preparedness to guide their investment decisions.

Open access and academically robust, the TPI enables investors to make more informed decisions and can shape their engagement activities and approach to proxy voting.

The TPI was established in January 2017 by the National Investing Bodies of the Church of England and the Environment Agency Pension Fund in the UK, and is backed by institutional investors, pension funds and asset managers. Their collaboration with LSE’s Grantham Research Institute mobilises cutting edge research for investors keen to understand how different sectors and companies are responding to the challenges of transitioning to a low carbon economy, and their preparedness for the risks and opportunities the transition brings.

Researchers at LSE devised a bespoke methodology for evaluating how companies are responding to climate risk using data provided by FTSE Russell.

“There was a feeling that the investment community could benefit from the research we were already conducting at the Institute exploring climate risk,” says Professor Simon Dietz, who leads LSE’s engagement with the Initiative. “At the same time, we recognised that there was a need for a high-level overview across different sectors, which could aid engagement around climate risk issues.”

Elizabeth Fernando, Head of Equities at USS (the UK’s largest private pension scheme) explains “As a long-term investor USS wants to be able to assess how companies are managing climate change and the risk it poses to their business. The TPI provides a tool for us to do this and as a result will allow us to make better informed investment decisions improving financial returns for our members and beneficiaries.”

108 investors globally had pledged support for the TPI by August 2021, representing over $29 trillion combined Assets under Management and Advice.

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