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Church’s Transition Pathway Initiative warns of ‘gaps’ in climate aims

23 July 2021

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THE latest climate targets and metrics put forward by the Task Force on Climate-related Financial Disclosures (TCFD) could “undermine wider efforts to transition to a low carbon economy”, members of the Church of England’s Transition Pathway Initiative (TPI) have warned.

In an open letter on Thursday of last week, asset-owner TPI members, led by the chair of the TPI and C of E Pensions Board, Adam Matthews, write that, while the TPI had always supported the TCFD and agreed with some of the targets and ambitions in its recent documents, Proposed Guidance on Climate-related Metrics, Targets, and Transition Plans, and the Measuring Portfolio Alignment: Technical supplement, these also contain “significant gaps and technical weaknesses”.

The TPI was established in 2017 by a coalition of the C of E’s national investing bodies and other ethically minded funds, to help investors to assess how effectively a firm is addressing the challenges of climate change (News, 13 January 2017).

Its members write: “We disagree with the positioning of implied temperature rise as a more sophisticated — and, in turn, more relevant — metric. We acknowledge that calculating implied temperature rise is a complex calculation than other methods presented, but this does not mean that it is a more robust or decision-useful measure.”

Adopting portfolio alignment metrics would also have “a series of undesirable consequences for asset owners potentially forcing them to breach their fiduciary duties” and incur extra costs. The key concern of the TPI, however, is that proposals could “undermine wider efforts to transition to a low carbon economy. In particular, the implied temperature metric has the potential to create wide misunderstanding and to drive the carbon washing of portfolios.

“It would become increasingly difficult to hold a portfolio of transitioning assets in high carbon intensive sectors, even if those very same companies had been responsive to investor engagement and made credible and independently verified net zero aligned targets that were consistent with the transition. Given that these are the companies and assets we need to transition, such an outcome seems perverse and, presumably, not the intention of the TCFD’s proposals.”

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