Global warming presents an enormous systemic risk to financial assets and their beneficiaries.  Charity trustees have a fiduciary duty to measure, monitor and manage this risk.  What can they do about it?  Ian Gamon recommends taking responsible steps to reduce carbon emissions, aiming for “Net Zero”.

In Hollywood films, it’s the down-trodden loser that saves the planet and goes from zero to hero in no time flat.  Meanwhile in the real world the looming crisis of global warming demands a different type of hero.  Collective action by humankind to halt and reverse our planet’s descent into perpetual storms, flooding, wildfires, pestilence and widespread loss of natural habitats.  Responsible trustees taking action to manage their climate-related risks and ultimately targeting “Net Zero” – that is carbon neutrality for their investments, where net emissions of carbon dioxide and other greenhouse gases are reduced to zero.

I wish I was exaggerating – sadly I’m not.  Sir David Attenborough lays all this out honestly and powerfully in his latest documentary “A Life On Our Planet”; his witness statement to the world.

The good news? There’s a new guidebook for investors on how to aim for Net Zero.  The Institutional Investors Group on Climate Change (IIGCC) has published a “Net Zero Investment Framework” for consultation. This Framework provides the first-ever practical blueprint for investors to tackle the risks of climate change by aiming to achieve Net Zero emissions.

Built around five components, the Framework offers a practical approach for investors to put in place a Net Zero strategy:

Source: LCP summary adapted from the main components and actions of the IIGCC’s proposed Net Zero Investment Framework.

Several large asset owners have already embraced these principles – including the Church of England, the Brunel Pensions Partnership and the BT Pension Scheme – galvanising billions of pounds of capital to help tackle these urgent risks.

Importantly, this is not a “one-size fits all”.  The Framework recognises that different asset owners and asset managers will be at different starting points, some with different regulatory constraints, different sizes and resources and others with differing mandates.  That is OK.  The key is to consider the risks and make a start on the journey to Net Zero.

Not sure where to start? Our recent guide for trustees of charities on managing climate change risk provides practical actions and considerations for investors setting out on this journey.  It includes a six-step action plan for trustees from which to start your journey:

The IIGCC would be the first to admit they don’t have all the answers. Morten Nilsson, the CEO of BT Pension Scheme Management, spelt this out brilliantly in an article about the Scheme’s decision to set a Net Zero by 2035 target, saying:

“Setting a goal not fully knowing how you're going to get there is bold. It was one of the topics we spent the most time talking about and could have stopped us from doing anything.”

In practice, the Framework will evolve with better data on carbon emissions, better understanding of the science and increased availability of climate-related investment solutions. In the meantime, take action and make sure you are managing climate risks for your charity and looking after the long-term interests of its beneficiaries.

At LCP we help charities, foundations, endowments and pension schemes consider and manage climate-related risks and opportunities.  Find out more about how we can help at our Responsible Investment hub, including my colleague Claire Jones’s article on investing to align with the Paris Agreement target.