Sustainable Finance Market Update – Institutional Investors
Financial Centres for Sustainability (FC4S) is launching the second report of the Road to COP26 Sustainable Finance Market Update Series. These decks aim to provide a review of the main market developments to mobilize green and sustainable finance and bring examples of supporting national and international guidance and regulations.
The second edition is about Institutional Investors and how these are actively contributing to the greening of financial markets. Institutional investors have the incentives to address and mitigate long-term climate-related risks, particularly pension funds and other long-term-focused investors who cannot easily diversify out of global risks such as climate change and thus have an inherent incentive to address them.
- Institutional investors are increasingly adopting ESG reporting frameworks and encouraging their investee companies to actively consider climate mitigation strategies.
- Institutional investors have started to systematically assess their material ESG risks portfolio exposure because evidence shows that such risks can be material to financial performance.
- Asset owners are increasingly demanding for better disclosure of environmental and climate related risks and that their savings be managed taking into consideration sustainability factors.
- Investors are increasingly fostering dialogue with companies through both direct corporate engagement and the use of shareholder rights; some are moving out of high-carbon investments to low ESG score investments.
- Financial authorities are stepping in providing protocols, supervisory guidance and consultations on the adoption of ESG factors and clarifying that these factors are consistent with fiduciary duty.