Beijing-based Asian Infrastructure Investment Bank (AIIB) and Europe’s largest asset manager Amundi have launched the first benchmark investor framework that holistically assesses climate change risks and opportunities in line with issuer-level objectives set out in the Paris Agreement on climate change.
Endorsed by Climate Bonds Initiative, an international certifier in the green and climate bond market, the AIIB-Amundi Climate Change Investment framework translates the three key objectives of the Paris Agreement – climate change mitigation, adaptation and low-carbon transition – into fundamental metrics, equipping investors with a new tool to assess an issuer’s level of alignment with them.
While groups leading institutional investors have responded to the climate challenge by integrating climate change into investment processes, the AIIB-Amundi framework takes a holistic approach that current private-capital mobilization efforts lack. Equity capital markets currently focus on thematic funds and commonly face strong sector bias, while low-carbon indexes have a pronounced focus on mitigation efforts. In fixed income, green bonds have been the main climate finance solution for debt capital markets, but they do not consider exposure to climate investment risks and opportunities from the viewpoint of an issuer’s entire balance sheet.
When measuring issuer performance, the framework also allows investors to include, in their investment portfolios, A-list issuers (those that are already performing well on all three objectives) and B-list issuers (those that are moving in the right direction, but are not A-list issuers yet). An investment strategy targeting both A- and B-list issuers should be more resilient to climate change risk and more exposed to opportunities not yet priced in by the market.
Investors can expect portfolios aligned with the AIIB-Amundi framework to deliver a potential financial impact by benefiting from any future repricing of climate change risks and opportunities in the capital market.
“Mobilizing key stakeholders in supporting the Paris agreement in Asia is in line with Amundi’s commitment to ESG [environmental, social and governance] investing and reflects our extensive commitment to the region,” says Yves Perrier, CEO of Amundi. “This new framework will further help the investment community address climate change through the mobilization of capital to emerging markets where it is much needed.”