Investment managers have a responsibility to act in the best interests of clients and to generate long-term returns. This requires the consideration of material risks in investment processes and judgements to be made about the relative level of risk and return that is needed to achieve their investment goals.
Addressing climate risk is among the most important actions the investment management industry can take to act in the best interests of our clients. We do not face a choice between economic growth and climate action. Instead, this is a choice for long-term, resilient economic growth that takes account of the risks and opportunities posed by climate change to the financial system.
Our industry’s clients are individual retail savers and institutional asset owners such as pension funds, insurers, charities and governments. Their investment objectives are typically financial, for instance having enough money to live on in retirement or meeting their liabilities, but can also include non-financial elements, such as to invest in companies or projects that have a specific social or environmental benefit or that “do no harm”.
Increasing numbers of clients are asking for both information on climate change and for products to deliver on their particular investment goals. The development of new products is being accompanied by intensive efforts to provide clients with the necessary information to make informed decisions as to whether their savings are aligned with their sustainability preferences and goals.
This is an edited extract from the IA Position on Climate Change.
The IA has continued to support member firms which choose to make net zero commitments. To date, IA members with more than £7trn in assets under management in the UK have made the Net Zero Asset Managers commitment.
Since our last Action Plan, it has become ever clearer that the legal environment around industry commitments on net zero, and other environmental considerations, is the subject of intense debate. The IA's Net Zero Forum has hosted expert speakers on legal and reputational risks associated with net zero commitments and how current legal frameworks enable investors to consider sustainability impact in their activities.
The Government and regulators have responded to industry demand for clarity. In February, the Competition & Markets Authority published draft guidance for companies cooperating on environmental sustainability goals, the FCA has also signalled that it is considering whether further clarification to encourage collaborative engagement on sustainability outcomes would be helpful, and the Government's revised Green Finance Strategy set out a programme of work including a working group to consider issues around fiduciary duty. We will engage with UK policymakers on this agenda, while encouraging them to use available channels to build international consensus.
The IA will work to promote industry and policymaker understanding of net zero commitments and other collective action on environmental factors. We will seek clarity around legal questions such commitments present within the UK.
Last year, the IA committed to helping consumers to make informed investment choices through the development of sustainable investment labels. In support of this, we continue to participate in the Disclosures and Labels Advisory Group, the FCA's expert advisory group to provide independent advice on the development and implementation of sustainability-related disclosures and labels.
In October, the FCA published a consultation on how it should introduce new sustainability disclosure requirements for investment managers, alongside a classification and labelling system for sustainable investment products. The IA has engaged with the regulator throughout this consultation to improve and enhance these proposals.
The programme of work remains under way, with the FCA announcing in March that the significant volume of written responses to the consultation would see a final policy statement delayed until Q3 2023. The IA remains committed to delivering the best outcome for consumers.
The IA will support consumers to make informed investment choices through the development of sustainable investment labels based on objective criteria using common terminology.
In 2020, HM Treasury published a roadmap for introducing mandatory climate-related disclosures across the UK economy, in alignment with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).
As the FCA has taken forward the element of the roadmap which applies to investment managers, the IA has supported members through the TCFD Implementation Forum. This forum facilitates member discussion of experiences and best practice in relation to the implementation of disclosures consistent with TCFD recommendations.
The IA has also participated in the Transition Plan Taskforce (TPT), of which a working group has been established to produce sector-specific guidance for investment managers developing transition plans. The FCA is expected to draw on the TPT’s outputs to develop and review TCFD-aligned disclosure rules for FCA-regulated firms.
In 2022, the IA, the ABI, and the PLSA launched a new template to help pension schemes calculate their carbon emissions. The Carbon Emissions Template (CET) provides a standardised set of data that pension schemes need to calculate their emissions, and will enable them to better understand the environmental impact of their investments.
The template helps pension schemes to obtain data and calculate their emissions as a step towards identifying and assessing the climate-related risks and opportunities they face.
The second edition of the CET was published in February, building on the first edition by adding a basic portfolio alignment metric, developing the information about sovereign debt, and introducing the capacity to provide information related to derivatives. In future, the template will be further developed based on feedback on users' experiences of the template and the evolution of regulatory requirements and market practices.