Climate Change Investment Framework
To meet the needs of investors and establish a consistent framework for analyzing, measuring and tracking the climate strategy by companies, the Asian Infrastructure Investment Bank and Amundi Asset Management jointly developed a climate change investment framework.
The AIIB-Amundi Climate Change Investment Framework is designed for institutional investors, capable of analyzing specific actions taken by companies in climate change and managing investment risks. At present, this investment framework has been certified by the Climate Bonds Initiative and used in the Asian Infrastructure Investment Bank’s Asian climate bond portfolio to screen issuers with better performance in climate issues.
Overview of Climate Change Investment Framework
Investment actions targeting climate change have received attention from companies and investors. In EU, listed companies with over 500 employees are required to disclose climate related information. In Asia (Hong Kong, Singapore, etc.), climate related information is shifting from voluntary disclosure to mandatory disclosure. The cost of obtaining funds for companies in the future will also be directly related to climate qualifications, for example, the interest expense of green bonds is lower than that of general bonds.
For institutional investors, the regulations and clients’ concerns about climate change require them to include climate change related information in their investment frameworks. The AIIB-Amundi Climate Change Investment Framework is consistent with the three goals set by the Paris Agreement, and climate risk measurement indicators have been developed for each goal.
The three objectives of the Paris Agreement are:
- Climate Change Mitigation
- Climate Change Adaptation
- Contribution to the Transition
The climate related risks and opportunities corresponding to these three goals are:
- Transition Risk
- Physical Risk
- Low Carbon and Climate Resilient Technologies
Indicators in Climate Change Investment Framework
The AIIB-Amundi Climate Change Investment Framework sets three types of measurement indicators, namely:
1. Indicators for mitigating climate change
- Direct carbon emissions (Scope 1) and indirect carbon emissions (Scope 23);
- The management measures and incentive measures related to carbon emissions formulated by the company;
- The shadow carbon price of the company in the process of carbon emissions;
- The relationship between the company’s existing carbon reduction plan and the Paris Agreement’s 1.5-degree Celsius warming target;
2. Indicators for adapting to climate change
- The proportion of operations in areas with high climate change risk;
- The probability of climate disasters occurring in the region where the company is located;
- The measures taken by the company to resist climate change;
- The financial impact that the company may be affected by climate disasters;
3. Indicators of climate transformation contribution
- The proportion of all company revenue invested in climate transformation;
- The proportion of green revenue of the company;
- Restrictions on the company’s exposure to carbon intensive assets;
Considerations for Using Climate Change Investment Framework
The AIIB-Amundi Climate Change Investment Framework also considers the practical issues faced by the company. In terms of mitigating climate change, the activities taken by companies are directly related to their industry, and these activities can be guided by the CBI Climate Bonds Standard and the EU Taxonomy for Sustainable Activities. Investors can quantify the emissions of Scope 1, 2, and 3 based on these guidelines.
In terms of adapting to climate change, the physical impact on companies is related to industry and location. Companies in the commodity industry chain are more susceptible to the impact of climate disasters. In terms of climate transformation, there is no global consensus on low-carbon activities, and some actions to reduce carbon emissions do not necessarily represent a proven contribution to low-carbon (such as using fossil fuels with lower carbon intensity such as natural gas to replace coal). Under different regional differences, some green economy measures may not be applicable to developing countries.