CLOSE

We permit the publication of our auditors’ report, provided the report is published in full only and is accompanied by the full financial statements to which our auditors’ report relates, and is only published on an access-controlled page on your website https://www.hermes-investment.com, to enable users to verify that an auditors’ report by independent accountants has been commissioned by the directors and issued. Such permission to publish is given by us without accepting or assuming any responsibility or liability to any third party users save where we have agreed terms with them in writing.

Our consent is given on condition that before any third party accesses our auditors’ report via the webpage they first document their agreement to the following terms of access to our report via a click-through webpage with an 'I accept' button. The terms to be included on your website are as follows:

I accept and agree for and on behalf of myself and the Trust I represent (each a "recipient") that:

  1. PricewaterhouseCoopers LLP (“PwC”) accepts no liability (including liability for negligence) to each recipient in relation to PwC’s report. The report is provided to each recipient for information purposes only. If a recipient relies on PwC’s report, it does so entirely at its own risk;
  2. No recipient will bring a claim against PwC which relates to the access to the report by a recipient;
  3. Neither PwC’s report, nor information obtained from it, may be made available to anyone else without PwC’s prior written consent, except where required by law or regulation; and
  4. PwC’s report was prepared with Hermes Property Unit Trust's interests in mind. It was not prepared with any recipient's interests in mind or for its use. PwC’s report is not a substitute for any enquiries that a recipient should make. The financial statements are as at 25 March 2017, and thus PwC’s auditors’ report is based on historical information. Any projection of such information or PwC’s opinion thereon to future periods is subject to the risk that changes may occur after the reports are issued and the description of controls may no longer accurately portray the system of internal control. For these reasons, such projection of information to future periods would be inappropriate.
  5. PwC will be entitled to the benefit of and to enforce these terms.
I accept
CLOSE

1. Select your country

  • United Kingdom
  • Austria
  • Australia
  • Belgium
  • Denmark
  • Finland
  • France
  • Germany
  • Iceland
  • Ireland
  • Italy
  • Luxembourg
  • Netherlands
  • Norway
  • Singapore
  • Spain
  • Sweden
  • Switzerland
  • USA
  • Other

2. Select your investor type

  • Financial Advisor
  • Discretionary Investment Manager
  • Wealth Manager
  • Family Office
  • Institutional Investor
  • Investment Consultant
  • Charity, Foundation & Endowment Investor
  • Retail Investor
  • Press
  • None of the above

3. Accept our terms and conditions

By clicking Proceed I confirm I have read the important information and agree to the terms of use.

Proceed

The Hermes Investment Management website uses cookies to remember your preferences and help us improve the site.
By proceeding, you agree to cookies being placed on your computer.
Read our privacy and cookie policy.

Investors’ economic and financial models need rethinking if climate change objectives are to be met

Home / Perspectives / Investors’ economic and financial models need rethinking if climate change objectives are to be met

Tatiana Bosteels, Head of Responsible Property Investment
26 January 2017
EnvironmentEOS

The current economic and financial models used by the investment industry need to be reconsidered if the targets outlined in the 2015 Paris Climate Change Agreement are to be reached, according to a new report entitled Navigating low-carbon pathways from Hermes Investment Management. Doing so is the only way to address the valuation threats climate change poses to investment strategies, which is part of investors’ fiduciary responsibility to their clients.

The report points to the important role investors have to play in closing the emissions gap between current commitments and the levels required to deliver a world in which global warming is limited to 2°C or less. However, while significant progress has been made, many investors have yet to fully integrate climate change into their investment decision-making processes and stewardship of companies and other assets.

Decarbonisation is a clear social trend today, with the longevity of an asset now inextricably linked to its environmental credentials. Investors need to play their part in financing emerging technologies and services, and in supporting adaptation to climate effects. Cooperation with policymakers will also be imperative to build a supportive public policy environment.

Tatiana Bosteels, Director, Responsibility, Hermes Investment Management said: “We need to challenge the current economic and financial models used by the investment industry if we are to ensure the world does not breach the scientifically-guided objectives we have set for ourselves on climate change.”

Bosteels continued: “We at Hermes believe that to ignore carbon risk is to ignore valuation threats to portfolios. We therefore have a fiduciary responsibility to play our part in steering the direction of companies and supporting their transition towards a 1.5°C world. The challenge, however, is bringing this issue into the way the finance industry operates.”

The report suggests that, within an industry driven by market benchmarks, investment decisions tend to be short term and aligned with the mainstream average. Against that backdrop, it is challenging to incorporate longer-term climate externalities into today’s investment models.

Bosteels said: “The question is how to review the benchmarks being used by the industry to account for a wider range of risks and opportunities within longer timeframes.”

The report goes on to emphasise that disclosure of carbon risks are critical, including carbon footprints and mitigation strategies. Hermes actively assesses the carbon footprints of its portfolios to ascertain what drives their carbon intensity. This has given some useful guiding insights over the years: investment style is a strong predictor of carbon footprint and stock-picking has the highest impact on portfolio carbon footprint. However, both the quantity and quality of data on carbon risks need to be improved to enable better assessment of how those risks could affect asset values and to allow for more finely-tuned integration of those risks into mainstream investment processes, according to the report.

It is also important that investors assess and disclose their own exposure to climate risks. Ideally investors should disclose the extent to which, through their investment strategy and other actions, they are achieving alignment with the transition to a low carbon economy.

Finally the report calls on investors to be more forceful in their advocacy to maintain and increase the momentum towards a world where global warming is limited to 2°C or less.

Bruce Duguid, Director, Engagement, Hermes Investment Management: “Engagement is a critical component in seeking to lower the carbon emissions made by a company or asset.  Moreover, it is our view that engagement, as opposed to divestment, is the more responsible action to take as it may lead to a higher likelihood of reduced emissions. There is no guarantee the acquirer of the divested asset or security will share our view on climate change risks.”

According to the report, a step-change in energy efficiency is possibly the biggest single opportunity to achieve emissions reductions as it represents almost 50% of investment opportunities globally. Data shows that as of today only 20% of the necessary energy efficiency from buildings, for example, has been achieved.

Navigating low-carbon pathways

Share this post:
Tatiana Bosteels Head of Responsible Property Investment Tatiana joined Hermes Fund Managers in 2008 to lead, develop and implement the integration of ESG in real estate investment and asset management practices to protect and enhance asset value over time. In 2016, she was appointed Director within Hermes' Responsibility team and tasked with developing Hermes' carbon risk strategy and supporting the integration of ESG across all private market strategies, including real estate, infrastructure and private equity. Tatiana has experience developing innovative sustainability programmes through public private partnerships. At the London Climate Change Agency, where she advised the London Deputy Mayor, she developed and delivered the Better Buildings Partnership (BBP) and contributed to the establishment of the first London ESCO. Her previous work covered UK and international climate change policy, carbon markets and instruments, and third-party energy efficiency financing. Tatiana is chair of the Institutional Investors Group on Climate Change (IIGCC) property programme, board member of the Investment Commission's UNEP Finance Initiative, and she has been an active contributor to public policy and sector engagement. Tatiana is an active member of the Better Buildings Partnership, and she sits in the British Property Federation’s sustainability committee and the advisory boards of the Building Performance Institute Europe and the Global Real Estate Sustainability Benchmark. Tatiana holds an MSc in Environmental Management from Imperial College London, an MSc in Mechanical Engineering from UCL Leuven Belgium and is a Fellow of the Royal Society of Arts.
Read all articles by Tatiana Bosteels

Find posts by author

  • Alex Knox, ACA
  • Andrew Parry
  • Andrey Kuznetsov
  • Audra Stundziaite
  • Elena Tedesco
  • Eoin Murray
  • Gary Greenberg
  • Geir Lode
  • Hamish Galpin
  • Ilana Elbim
  • Louise Dudley
  • Mark Sherlock, CFA
  • Martin Todd
  • Michael Russell, CFA
  • Michael Vaughan
  • Mitch Reznick, CFA
  • Neil Williams
  • Nina Röehrbein
  • Patrick Marshall
  • Philip Nell
  • Saker Nusseibeh
  • Tatiana Bosteels
  • Tim Crockford
  • Tim Goodman
  • Tommaso Mancuso
  • Yasmin Chowdhury

Find posts by category

  • environment
  • eos

Press contacts