Investors have an opportunity to finance the transition to a low-carbon economy and a fiduciary duty to protect their portfolios from the uncertainty which this transition, together with the physical impacts of climate change, will cause.
As a consequence, environmental, social and governance (ESG) factors have become important considerations in the investment processes of responsible asset owners and investment managers. According to the Global Sustainable Investment Alliance, global investments that incorporate ESG criteria into their decision-making reached US$30.7 trillion in 2018, representing 42.32% of total assets under management.
Investors have adopted a range of strategies to incorporate ESG issues into their investment process, such as investing in low-carbon portfolios, excluding the worst performing companies on ESG issues, and stewardship, where investors engage with their investee companies to effect strategic change. A number of global initiatives support investors in these strategies, such as the Principles for Responsible Investment (PRI), which offers a framework for incorporating ESG issues into investment practice, and the Carbon Action 100+ initiative, which is a collaboration among investors to drive decarbonization actions among high-carbon industries.