Portfolio Climate Risk Management: Case Studies on Evolving Best Practices

As the climate crisis, its physical impacts and the transition to a net-zero emissions economy all accelerate, global investors increasingly recognize the material and financial risks to their portfolios. Large institutional investors know they must assess and manage climate-related risks if they are to meet their fiduciary duties to clients and beneficiaries. Recognizing the economic materiality of climate change as investment risks, some leading global asset owners have become early movers in taking comprehensive action to identify, evaluate and manage climate-related risks in their portfolios. In steps that align with The Investor Agenda, an initiative to accelerate and scale up the actions that are critical to keeping global warming to no more than 1.5 degrees Celsius, some have developed climate action plans involving low-carbon investment strategies, corporate engagement, disclosure and policy advocacy. The case studies presented here show a range of evolving best practices used by some of the largest global asset owners and financial institutions. Ten asset owners are profiled in these case studies—AP2, the Second Swedish National Pension Fund; the Brunel Pension Partnership; Cathay Financial Holding Co. Ltd.; Caisse des Depots et Placement du Québec; New Zealand Superannuation Fund; OPTrust; the Ontario Teachers’ Pension Plan; PFA Pension of Denmark; PGGM Investment Management, and Wespath Investments and Benefits. These case studies offer a snapshot of how the profiled funds and institutions currently address climate risk. The approaches these funds and their peers employ are rapidly evolving as investors learn from both individual and collective experience.