Sovereign wealth fund group launches framework for addressing climate change

A group of six sovereign wealth funds have launched a framework to help integrate climate change analysis among asset owners.

The six funds, which collectively represent more than $3 trillion in assets, formed the One Planet Sovereign Wealth Fund Working Group in December, with the aim of accelerating efforts to integrate opportunities afforded by the transition to a low-carbon economy. The group also works to address risks related to climate change in the management of large, long-term and diversified asset pools. The work has been championed by French President Emmanuel Macron.

The group published Friday its framework, the outcome of consultations among the six founding sovereign wealth funds and with other institutional investors that are working to integrate climate change issues into money management.

The framework comprises three principles: alignment, ownership and integration.

Under alignment, the funds aim to build climate change considerations that are aligned with the funds' investment horizons into decision-making. Under this principle, the framework states that sovereign wealth funds should report on their approaches to climate change.

Regarding ownership, funds should encourage companies to address material climate change issues in their governance, business strategy and planning, risk management and public reporting in order to promote value creation. The framework said sovereign wealth funds should encourage companies to publicly disclose how climate change may impact future performance and what actions they are taking to that end.

The third principle, integration, relates to the consideration of climate change-related risks and opportunities in investment management, in order to improve the resilience of long-term investment portfolios. Funds should identify, assess and manage portfolio risks generated by the expected move to a low-emissions economy and should consider investment opportunities resulting from the global effort to address climate change, the framework said.

"By using the framework, SWFs can reinforce their long-term value creation, improve their risk-return profile, and increase long-term portfolio resilience by factoring and integrating climate issues into their decision-making," a statement by the six founding SWFs said. "The One Planet SWF Group hopes that other long-term institutional investors will be able to make use of this framework in the execution of their mandates and investment objectives."

The group will work with other organizations, such as the International Forum of Sovereign Wealth Funds, to exchange and advance best practice on climate issues.

The six founding sovereign wealth funds are:

• Abu Dhabi Investment Authority
• Kuwait Investment Authority, Kuwait City
• New Zealand Super Fund, Auckland
• Norges Bank Investment Management, which runs the assets of the Government Pension Fund Global, Oslo
• Public Investment Fund, Riyadh, Saudi Arabia
• Qatar Investment Authority, Doha.