RailPen would very much like to know what their fund managers are doing to address this key sustainability issue. And to help them with their review, they have worked with HSBC and Linklaters to develop a 77 question Risk Audit covering a four broad topics: legal, investment strategy, client demand issues and asset categories.
The launch of the Risk Audit has been timed to co-incide with the UN Climate Change Conference in Denmark. Commenting on the launch of the Audit, Frank Curtiss, Head of Corporate Governance at RailPen said that: “Climate change is very real and must be taken into account when looking to the future of investment strategy: those who successfully move to a low-carbon future are likely to prosper but those who don’t will risk being stranded managing portfolios linked to an increasingly outdated high-carbon world.”
Until recently trustees have been dogged by uncertainty as to whether it was legal to consider climate change issues as part of their investment strategy. That’s why RailPen was keen to work with Linklaters’ Vanessa Havard-Williams, head of their global practice head of climate and environmental regulation. As Vanessa says: “The role of a trustee is to invest assets in the interests of beneficiaries, which requires taking account of all relevant factors including longer-term investment value. Trustees, like the rest of us, should be aware of the scientific consensus on climate change and the emerging policy response. If they fail to take any account of these factors, that omission could expose beneficiaries to lower midterm returns. Our audit should help trustees to assess progress in doing so and their advisors’ approach to integrating climate change issues into their offering.”
The Risk Audit has attracted the endorsement of Lord Stern, author of the Stern Review, who notes that “This Audit will provide a fascinating insight into the current thinking and views of actuaries, investment consultants and asset managers thereby stimulating the dialogue between asset owners and their advisers.” Stern acts as an advisor to HSBC, architects of the HSBC Climate Change Index. Gordon Morrison, Head of Portfolio Risk Analytics at HSBC, said “While many investment managers have incorporated a portion of their assets to climate change, we firmly believe that the evidence points to climate change affecting all companies wherever they are located in the world and necessitating a long term seismic shift in economic investments at the very centre of portfolio construction.
This is not RailPen’s first foray into sustainable investing. In January 2008 they came together with USS, Henderson, Insight and Acclimatise to publish a report looking at the investment implications of climate change, “Managing the Unavoidable”. One of the key themes to emerge from the study was the need for tools to help investors understand climate change risks and opportunities. The Risk Audit is RailPen’s contribution to moving the debate forward. Considering that the fund has over 50 separate mandates across several asset classes, its influence is likely to be considerable. “This audit is part of our ongoing evaluation of our investment managers’ and advisers’ views, opinions, their investment processes, investment structure and practical implementation in relation to the potential risk and rewards arising from climate change.” said Curtiss.
While answering the questions might be demanding, RailPen aims to ease the way by making the Risk Audit readily available; free copies are avaible by email at email@example.com
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