A new project to help investors limit carbon risk in their investment portfolios aims to succeed by keeping the action investors can take simple and by getting chief executives, rather than ESG departments, to lead the action.

The initiative – called Forceful Stewardship – has been launched by Preventable Surprises, a think tank headed by ESG specialist Raj Thamotheram.

The plan is different from others within the area, according to a paper introducing it, as it makes action to limit climate disruption a responsibility of chief executives, CIOs and trustees and board directors of institutional investors, rather than something that can be delegated.

Thamotheram said it pushes responsibility to the top of the institution’s hierarchy by showing climate change is a systemic risk affecting investment returns. 

He told IPE: “Because this has been dealt with as a values-led subject, it’s been possible for the climate file to be handed over to the head of ESG.

“What we’re saying is that, on the contrary, this is a mainstream investment issue causing portfolio value-at-risk, and, therefore, senior executives and boards of investments firms have to take primary responsibility for addressing this risk.”

He stressed that ESG staff at institutional investors were doing the best they could, but he said it was only the boards and senior executives of these organisations who could decide on investment beliefs and stewardship guidelines.

Forceful Stewardship also differs from existing initiatives in that its methods could change corporate strategy and greenhouse gas (GHG) emissions relatively quickly – within 5-10 years – Thamotheram said.

He said it was as easy to understand and monitor as divestment, being based on two questions: asking companies to reveal their low-carbon business plan, and asset managers to reveal whether they have voted for companies to disclose such a plan.

The initiative involves guidelines on action investors should take, such as declaring their intention to vote in favour of shareholder resolutions to help cut systemic climate risk while protecting long-term shareholder value.

Thamotheram said he was hopeful the project would succeed, as, fundamentally, investment funds have to reflect the interest of their savers and members.

“The paradigm change we’re taking about is the shift to fiduciary capitalism, the idea that your primary duty is your portfolio and the intergenerational equity,” he said. ”Are you robbing future generations of members to maintain the current investment returns?”

John Rogers, former chief executive of the CFA Institute and a participant in the online dialogue that led to the report, said an attractive aspect of fiduciary capitalism was that it encouraged long-term thinking.

“As universal owners, fiduciaries foster a deeper engagement with companies’ management teams and public policymakers on governance and strategy,” he said.

Thamotheram said Preventable Surprises had published three academic papers evidencing the scale of climate risks for investors.

Topics