Lauren Compere, Managing Director
Climate is a systemic risk for every investor. In nine months, COP26 in Glasgow will bring together governments, central banks, investors, insurers, and companies. These players are finally leaning towards net-zero carbon commitments by 2050.
In advance of Biden winning the 2020 US election, FED Chair Jerome Powell stated that the Fed can play a part in keeping global warming from destabilizing US banks and financial markets[1]. With the US once again backing the Paris Agreement and President Biden pushing a climate-friendly regulatory environment, there is an opportunity to address the systemic risk that climate represents for all sectors, particularly the financial sector.
According to the Intergovernmental Panel on Climate Change (IPCC), if all the unconditional NDCs (Nationally Determined Contributions) under the Paris Agreement are implemented, the world is on track for warming around 3.2 degrees Celsius above pre-industrial levels by the year 2100, far exceeding the 1.5-degree target set by the Paris goals. Despite this frightening projection, green financing commitments remain dwarfed by investment in fossil fuels.
In early 2020, Boston Common became the first US asset manager to join the Platform for Carbon Accounting Financials (PCAF). As part of the PCAF Core team, we helped develop global carbon accounting standards launched in November covering six asset classes. Recently, Boston Common joined the Net Zero Asset Managers Initiative alongside 73 global asset managers representing $32 trillion in AUM. As signatories, we are committed to aligning our investments to net-zero emissions and a 1.5 degrees Celsius scenario by 2050.
Boston Common has a long history of investing in companies that are accelerating the transition to a low carbon economy, including companies that focus on renewable energy, climate mitigation and adaption, more efficient processes, and circular economies. We fully divested from fossil fuels in 2019 and we have been assessing and publicly disclosing our financed emissions since 2015.
Our engagement initiatives have focused on addressing the systemic risks and impacts of the climate emergency. Under our five-year flagship initiative, “Banking on a Low Carbon Future”, we engaged nearly 60 global banks on climate risks and opportunities, highlighting the need for the financial sector to step up on climate. In 2019, we issued our first benchmarking report, “Improving Efficiency, Unlocking Returns” built on five years of engagement with nearly 50 companies. The report sets a baseline for Eco-Efficiency practices for energy, water, and waste. We engage companies on deforestation risk in multiple sectors including Financials, and we have started to explore incorporating biodiversity into our approach. The time for incremental change to address the climate emergency is over. We must transform the financial system, and all actors, including asset managers, must play their part.
[1] https://www.reuters.com/article/us-usa-fed-climatechange-idUSKBN1ZT031