1. A risk question investors should be asking your board Climate risk is not only about fossil fuel companies Mike Clark, Director, Responsible Investment 11 NOVEMBER 2015 1

2. So, let’s start with the question ›“Please explain how your company’s business model is aligned to 2-degree climate resilience” p.2

3. Four key players - Who owns the money? Plus the umpires p.3

4. He thinks there’s a risk issue… p.4 “The majority of proven coal, oil and gas reserves may be considered unburnable if global temperature increases are to be limited to 2 deg Celsius” Mark Carney, Governor, Bank of England, Autumn 2014

5. So does this Pension Fund… ›…the objective is to ensure that our Fund’s investment portfolio and processes are compatible with keeping the global average temperature increase to remain below 2°C relative to pre-industrial levels, in-line with international government agreements. ›We have set ourselves three targets for 2020: ›Invest 15 per cent of the fund in low carbon, energy efficient and other climate mitigation opportunities. ›Decarbonise the equity portfolio, reducing our exposure to “future emissions” by 90 per cent for coal and 50 per cent for oil and gas by 2020 compared to…as at 31 March 2015. ›Support progress towards an orderly transition to a low carbon economy through actively working with asset owners, fund managers, companies, academia, policy makers and others. p.5 Source: Environment Agency Pension Fund (2015, abbreviated)

6. Climate asset risk is a financial risk Value vs values 6 ESG integration Socially Responsible Investment (SRI)  Sustainable financial value  Mainstream, it took a while  Aligns with fiduciary role  Internalise economic externalities  End-investor has values beyond only financial goals  Often leads to security exclusion  Pooled fund challenges UN Principles for Responsible Investment (UNPRI)

7. ESG integration: Two main investor decisions ›Asset owners (e.g. pension fund trustees) ›Climate risk can become an investment belief ›So it is incorporated in overall investment strategy ›Not just pension funds, e.g. insurance company investment ›Investment managers ›Awarded mandates by asset owner clients ›Low carbon mandates are being awarded ›Ownership responsibilities are being exercised, often collectively, on systemic issues such as carbon risk p.7

8. So what’s happening where I live? p.8 COP21 Late 2015

9. And where you live? p.9 Shareholder Resolutions:

10. Some other influencers p.10

11. How about the Pension Fund’s Scheme Actuary? Here’s how one scheme did it “Our pension fund has had a responsible investment policy in place for several years. We believe our portfolio is more resilient to some future risks (especially environmental) than the average UK pension fund. So, how might your actuarial valuation of our pension fund reflect that, and give us a financial benefit?” p.11

12. And now for something completely different Carbon price estimates ($/tCO2) YearPrice ($)Range ($) 20202410-50 20254320-75 20307940-120 203511650-200 204017960-300 204523975-400 p.12 Source: Stranded Assets Forum participants (Clark)

13. Conclusions ›The investment chain is starting to manage climate risk ›Climate asset risk is real ›Some “unjustifiable” capex will be challenged by investors ›Financial regulators are stirring ›How well can you answer the question? p.13