Winning Climate Strategies


This guide explores the landscape of best practice by asset owners, identifies common barriers, and presents a framework of ten building blocks for all asset owners, wherever they are on the road to climate leadership.

The key points

We covered the whole industry: Based on interviews with 22 leading asset owners from across the spectrum, the findings and building blocks presented in this guide offer a unique industry-level perspective.

This is a practical tool: Based on the real experiences of leading asset owners, the framework of ten building blocks is designed to help other asset owners navigate an increasingly complex environment in their climate strategy journeys from beginner to best practice.

Anyone can do it: This guide reveals how climate leadership is achievable for asset owners of all sizes, locations, and categories.

How we identified winning climate strategies

In early 2018, we interviewed 22 asset owners who received a ‘leaders’ rating in our AODP 2017 Global Climate Index. We asked them a series of questions covering the Task Force on Climate-related Financial Disclosures (TCFD) framework, organizational culture, purpose, education, engagement, investment strategies, priorities looking forward, and practical advice for other asset owners.

The findings of our analysis are presented in three sections:

  1. Current best practices landscape
  2. Common barriers
  3. Ten key building blocks for other asset owners

What we learned from surveying the best practices landscape

Our interviews revealed there is no single best approach to achieving a successful climate strategy, though leaders are undertaking systematic and holistic responses to climate-related issues. We identified the following ten shared approaches leaders are pursuing in their climate strategies.

We identified ten common approaches undertaken by leaders in their climate strategies:

Embracing senior leadership and education in their climate governance

Strong leadership from the Board and senior management was commonly identified as a driving force behind leading climate strategies, with many also undertaking climate-related education and training. Leading asset owners are also exploring climate-related advisory groups, incentive schemes, and organisation-wide involvement.

Building organisational cultures that support responses to climate-related risks

A significant number of respondents discussed the importance of their organisational culture in driving their climate strategies. Some key cultural dimensions include environmental, social and governance (ESG) and responsible investment backgrounds, entrepreneurship, and governance.

Building meaningful relationships with members, savers and beneficiaries around climate-related issues

Leading asset owners are looking beyond traditional reporting avenues to help build meaningful relationships with their members around climate change. Some innovative approaches include undertaking member delegate programmes, climate-related events, transparency in their communications, and exploring more engaging narrative styles.

Publishing TCFD-aligned reports

Some asset owners are leading by example in publicly responding to the TCFD recommendations by already publishing TCFD-aligned reports.

Pursuing a ‘whole of fund’ approach in their climate strategies

All respondents are taking systematic and holistic approaches in their climate strategies, with the majority also incorporating various climate-related targets, and some incorporating the Sustainable Development Goals (SDGs).

Innovating in their low-carbon asset allocation

Developing or integrating low-carbon indexes, exploring green bonds, and increasing investments in low-carbon illiquid assets are some of the most common approaches to low-carbon asset allocation.

Driving commitments from asset managers on climate-related issues

Many respondents are proactively driving their relationships with external asset managers via selection and monitoring, creatively using metrics such as carbon footprinting, or applying climate-related targets.

Prioritising climate-related issues in their risk and investment analysis

Leading asset owners are increasingly prioritising the transitional and physical risks associated with climate change in their risk and investment analysis. Many have also already undertaken first steps in scenario analysis and are integrating key findings into their climate strategies.

Refining, escalating and collaborating in their engagement with investee companies

Respondents are refining and escalating their climate-related company engagement by targeting core issues and sectors, and increasingly relying on influential collaborative initiatives such as the Climate Action 100+.

Leaders are engaging on climate-related regulation and policy

Recognising the importance of a supportive regulatory and policy environment for a successful low-carbon transition, some respondents are prioritising regulatory and policy engagement in their climate strategies.

Leading the way

Environment Agency Pension Fund (EAPF) was the first fund to commit to operating under a 2-degree target (its climate strategy also pre-dates the Paris Agreement). The UK pension fund has followed a value-driven investment approach to embedding low-carbon into every asset class and has to date invested over £1.1bn in social and sustainable investments. EAPF has set an ambitious target of investing 15% of the fund in low-carbon, energy efficient and other climate-mitigation opportunities by 2020 under the broader goal of investing 25% of the fund in clean and sustainable companies and funds across all asset classes.

What common barriers climate leaders shared with us

Our interviews revealed a range of barriers commonly faced by leaders in their climate strategy journeys. This information will be useful for other asset owners at earlier stages of their journey to climate leadership.

Data quality concerns

Nearly all respondents raised concerns about climate-related data quality, on a variety of levels. The topic of scenario analysis was also commonly raised due to concerns around a lack of clarity and expectations for asset owners, and the investment-relevance of currently available scenarios.

Lack of momentum in regulation and policy

Another dominant barrier raised by respondents related to climate-related regulation and policy concerns, mostly at national levels. Some leading asset owners have responded by prioritising policy engagement in their climate strategies.

Perceived lack of low-carbon investment opportunities

Respondents offered mixed views around the availability of low-carbon investment opportunities. While some reported facing difficulties in finding enough investable opportunities, others noted they had faced no such issue. Some respondents also reported liquidity constraints as an issue where opportunities existed, in non-equity asset classes.

Misaligned time horizons

Misaligned time horizons also featured as a barrier on a variety of levels, from the time horizons of different categories of climate-related risks to the time horizons between actors across the financial ecosystem (asset owners, asset managers, and investment consultants).

Prevalence of traditional mindsets

Some respondents identified traditional mindsets as a barrier, such as investors who still consider ESG and financial performance as a trade-off, or trustees who still regard climate change as an ethical or political issue.

Lack of confidence in asset managers

A lack of confidence in the climate-related stewardship or asset management services from the asset manager community was also identified as a barrier by a number of respondents.

Language concerns

Some respondents noted concerns around the use of language and terminology in this field as a barrier, which have tended to be complex, historically focused, and unable to connect with multiple audiences.

What climate leaders recommend for their peers at early stages

Based on the advice received from leaders, this framework presents ten practical, cost-effective, and impactful building blocks relevant for asset owners of all shapes and sizes.

Get educated on climate change issues

Becoming informed around the investment risks of climate change is a fundamental step in developing an effective climate strategy. Seeking assistance from external professionals (such as researchers, investment service providers and leading peers) helps to develop an internal knowledge-base and gain commitment. Sharing climate-related knowledge throughout the organisation also helps clear misconceptions and gain internal ‘buy-in’.

Focus on climate governance

A strong climate governance foundation is also pivotal for developing a successful climate strategy, which can be developed through climate-related education, training, incentive schemes, and internal participation.

Focus on communication

Clear and simple communication with both internal and external stakeholders around climate-related investment issues can help gain commitment, strengthen relationships, and signal ambition.

Start now but follow a step-based approach

Our respondents emphasised how their leading climate strategies developed over years. Following a step-by-step approach also leaves appropriate room to learn from experience.

Develop a formalised climate-related strategic response

The simple process of collecting all climate-related initiatives into a single document helps identify strengths and weaknesses. Developing a more formalised climate-related strategic response with corresponding beliefs, goals, targets, objectives, and responsibilities helps to identify barriers and gain commitment.

Start with small low-carbon investments

Leading climate strategies often begin with small investments in low-carbon opportunities, which help to develop a stronger understanding of these investments before incrementally increasing over time.

Consider climate change as an investment risk

Considering climate change as a material investment risk helps to identify areas of portfolio risk exposure and guide climate strategy development.

Start supporting climate-related shareholder resolutions

Supporting climate-related shareholder resolutions is an affordable and effective way to begin company engagement on climate-related issues. Another step could involve introducing key climate-related issues into direct company engagement activities.

Join a collaborative initiative

Collaborative initiatives present an affordable way to influence systemic-level change beyond the reach of individual investors, build networks, share best-practice, and gain valuable information.

Start with carbon-footprinting your listed equity portfolio

Undertaking carbon footprinting of listed equity portfolios (where services and methodologies are most developed) helps to identify areas of climate-related portfolio exposure and develop literacy around carbon data.

Investors are increasingly recognizing the need to rapidly decarbonize the global economy and their portfolios in order to lessen climate change’s impact to financial returns and their beneficiaries’ quality of life and to avoid the potentially catastrophic scenarios of going beyond 2C of warming. This guide provides valuable support to all asset owners on the actions their peers have already taken and the steps they can take to develop and implement climate resilient investment strategies.

Rick Stathers

Global Director of Investor Initiatives, CDP