$5trn investor coalition launches sovereign debt framework
A collaboration of asset owners and managers has proposed a new framework to help investors assess the climate risks and opportunities in individual countries.
A coalition of international investors, with $5trn of assets under management, has launched aframework to assess sovereign bond issuers’ actions and progress towards addressing climate change.
The Assessing Sovereign Climate-related Opportunities and Risk (ASCOR) project, led by BT Pension Scheme Management and the Church of England Pensions Board, has proposed aframework that will help investors engage with sovereign debt issuers on net-zero alignment. It will also enable sovereigns to showcase their progress in tackling climate change.
Following a consultation, the final framework will result in a free and publicly available assessment tool intended to help asset owners and managers achieve their net-zero targets.
ASCOR is said to have “woven the principles of fairness into the framework with the aim of encouraging financial flows to support a resilient and just low-carbon transition”, particularly in emerging markets.
Adam Matthews, ASCOR co-chair and chief responsible investment officer at the Church of England Pensions Board, said: “Through this framework, we are putting in place a vital part of the financial architecture necessary to unlock the private finance flows governments need to achieve their national climate ambitions.
“The framework provides clarity about the public disclosures investors require to play their part in supporting the transition.”
By translating the complexity of climate risk assessment into clear, assessable metrics that tie to long-term economic drivers, ASCOR is putting climate change at the heart of sovereign investment decision-making.
Sovereign bond climate risks
To achieve net zero, investors are required by regulators to demonstrate an understanding of climate risks in their investment portfolios. However, currently, there is no universally coherent way to assess sovereign debt from a climate change perspective.
Hence, the ASCOR’s framework will focus on countries’ sustainable finance plans, policiesand transition requirements both in terms of mitigating climate change and building resilience to climate impacts.
Victoria Barron, ASCOR co-chair and head of sustainable investment at BT Pension Scheme Management, said: “There is an analysis dearth where investors do not have information on the climate risks and opportunities of sovereign issuers, and sovereign issuers are not clear on what information investors are seeking.
“This is leading to unfair extrapolations or missed investment opportunities. By translating the complexity of climate risk assessment into clear, assessable metrics that tie to long-term economic drivers, ASCOR is putting climate change at the heart of sovereign investment decision-making.”
The framework has been developed in collaboration with the Transition Pathway Initiative Global Climate Transition Centre. It is under public consultation until 31 March, with the online tool expected to be published by the end of 2023 and then updated annually.
