Putting our Future First: Why asset owners have a duty to mitigate climate risks and impacts
Climate change is a systemic risk that threatens significantly the economic stability, the long-term financial performance of investors’ portfolios and the living conditions of their beneficiaries. For asset owners, limiting climate change is therefore an essential part of fulfilling their fiduciary duty. Consequently, asset owners must use all the tools at their disposal to reduce emissions in the real economy in line with a 1.5°C trajectory.
Key findings:
- Climate change is likely to cause significant economic losses, potentially amounting to as much as 50% of GDP by the end of the century. And global equity valuations could decline by as much as 40% due to climate impacts without accelerated decarbonization.
- Climate change directly affects the living conditions of current and future beneficiaries of asset owners, including access to essential goods and services such as healthcare, food, water, energy, and transportation.
- To act in the best interests of their beneficiaries, as required by their fiduciary duty, asset owners must therefore act to mitigate climate risks and climate impacts. This requires prioritizing long-term economic and financial stability over short-term financial performance.
- In practical term, asset owners should stop allocating new capital to developers of new fossil fuel projects, strengthen engagement using votes against management-proposed resolutions, leverage external manager selection and oversight, and support ambitious climate policies.