To avoid this, trustees should focus on creating a climate transition plan that is aligned with fiduciary duty. Approaching it in this way will ensure they create a long-term view that allows schemes to identify potential risks early and prepare actionable steps, regardless of regulatory uncertainty and other external challenges, claims the leading pensions and financial services consultancy. Climate transition plans are most effective when focussed on adapting to, identifying and prioritising action on climate related risks, it adds.
Schemes’ climate transition plans should cover four areas in the context of fiduciary duty: portfolio emissions, asset alignment, stewardship, and climate solutions. A well-developed plan creates flexibility for greater breadth and integration of sustainability reporting over time, particularly the interaction with nature-related risk and opportunity. Early adoption could bring opportunities for predictable sources of sustainable revenue and reducing reporting burdens. When done successfully, organisations can benefit from seamless integration of sustainability in investment decisions, while demonstrating leadership in sustainable finance.
Commenting on the value of climate transition plans sitting at the core of sustainable investment strategies, Mhairi Gooch, Investment Consultant, Hymans Robertson, says: “We support the development of transition plans. Ultimately these plans should be central to client’s sustainability strategies. Climate ‘transition’ risks are more complex today and traditional measures of emissions are not telling the full story. In addition, physical risks are here and now and are likely to increase in severity and frequency. Climate transition plans should be implemented to help identify and prioritise various risks that climate and nature present in order to help build resilience in the investment strategy. They must now be seen as a strategic imperative rather than a ‘nice to have’, and so clients should avoid viewing them as such.
“With climate policy fragmented and stalling, waiting for regulatory certainty can mean missing out on opportunities as well as overexposing stagnant strategies to various risks. Plans can be tailored to avoid this, and all asset owners should get ahead if they want to maximise market opportunities.”
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