How can you align your investment portfolio with the Paris Agreement?

You can calculate the historical and future greenhouse gas emissions (Scope 1, 2, and 3) of your portfolio for free at ecorth.com. You can also see how your portfolio is performing in relation to 30+ climate scenarios, and calculate it's physical and transitional impacts up to 2050. The free tool is launching from late January 2024.

The most widely adopted (and recognised) approach to calculate financed emissions is through the Partnership for Carbon Accounting Financials (PCAF) Standard. Investors should gather accurate data on companies' emissions and select appropriate proxies for cases in which data is not available — these are usually the main barriers to a comprehensive assessment. Asset managers can address these barriers by adding companies' GHG inventories as a requirement in investment processes.

Assessing your carbon footprint using the GHG Protocol as a reference is the best starting point. There are numerous reporting mechanisms and frameworks that can be used to asses your portfolio, depending on the sectors and asset classes. GRESB for real estate and SBTI’s for a wider range of sectors.

In my experience, Think of measuring your investment's carbon footprint like checking the environmental impact of your money. You're figuring out how much greenhouse gas emissions are linked to the companies you invest in. Online tools, like Carbon Disclosure Project or Portfolio Carbon Initiative, can help you calculate this and compare it to standards. It's like giving your investments an eco-check – seeing where emissions come from and which areas face climate risks the most. This info helps you make choices that align with a greener, more sustainable future.

Investors need to know more than just their portfolio emissions value. They need to perform a more informed assessment and identify- 1. What are the operational and business boundaries of their portfolio companies. - Learn more about recent acquisitions and mergers and its impact on climate strategy of the company 2. What activities are included and excluded from company’s GHG accounting and how are they benchmarked against competition? 3. What are the opportunities for emissions reductions and energy efficiencies. What are the negative impacts? 4. Are their business partners/suppliers working with the company to reduce value chain emissions? 5. Check if the companies are reporting in accordance with GRI standards and GHG protocol

The EU taxonomy for sustainable activities is the cornerstone of the sustainable finance framework. It was developed to promote accountability and transparency in the EU market. It defines the criteria that align with a net zero corporate path and broader environmental goals. Using the EU taxonomy, one can identify and invest in sustainable activities.

Now that you've got the lowdown on your investment's carbon footprint, the next step is to cut it down. Look for investments that are eco-friendly and support a shift to a low-carbon world. Think renewable energy, energy efficiency, green transport, or sustainable agriculture.These planet-friendly investments come in different shapes – stocks, bonds, funds, or ETFs. To be sure they're genuinely green, you can check for labels like the EU Green Bond Standard or the Climate Bonds Initiative. It's like choosing investments that not only make financial sense but also contribute to a greener, more sustainable future.

It can be daunting to identify genuinely green investments, given the prevalence of "greenwashing." Investors should look for funds with credible, certified green credentials and consider the long-term viability of their green initiatives. Engage financial advisors who specialize in sustainability to navigate these complexities. The following could be deployed: Step 1: Research and identify mutual funds and ETFs that are labeled as low-carbon or that focus on renewable energy. Step 2: Evaluate the sustainability reports of these investments to ensure their strategies align with the Paris Agreement goals. Step 3: Diversify your investments across different green sectors to mitigate risk and capitalize on various sustainable growth areas.

Just ensure that the funding is used for the total carbon and look at the embedded carbon as easy to get fooled by the top line saving and not the full impact on your carbon foot print

This can be done by adopting a negative screening i.e., avoid investing in 'sinful' stocks or in carbon - intensive sectors. Another way is align the investment portfolio in various economic sectors which are deemed "sustainable/green" by the numerous sustainable finance taxonomies such as EU Taxonomy, Chinese taxonomy, South African taxonomy, etc.

To sync up with the Paris Agreement and steer clear of climate risks, consider steering clear of fossil fuels in your investments. Fossil fuels are a major player in greenhouse gas emissions and the warming of our planet. As the world leans towards a low-carbon future, these investments come with growing risks – regulatory, financial, and reputational. By skipping or divesting from fossil fuels, you not only shield yourself from these risks but also show the market you're on board with climate-friendly goals. Tools like Fossil Free Funds or Carbon Tracker can help you check how much of your investments are tied to fossil fuels. It's like taking a stand for a greener future and reducing the impact of your investments on the environment.

To be sync with the goal enshrined in the Paris agreement, divestment from fossil fuels stocks will not be sufficient, rather than the divestment tool should be strategically and wisely used, along with stakeholder engagement to influence the green transition, along with just transition across the carbon - intensive industries. The investment in fossil fuel industry can be using screening tools such as Fossil Free Funds, Carbon Tracker, etc., and also one can be track of the investment made in this industry through annual 'Fossil Fuel Finance' reports by Rainforest Action Network, and in addition also following UNEP Production Gap report (to assess the fossil fuel development at the country - level).

As it states at the moment fossil fuel replacement is not green until we can move towards green generation so national changes or self generation from renewable

The difficulty here lies in the potential short-term financial risks of divesting from historically profitable sectors. Counteract this by researching alternative sectors that have growth potential in the green economy. Transition gradually, and seek out investment vehicles that focus on renewable energy and sustainable practices. The following steps could be applied : Step 1: Identify all current investments in fossil fuel and assess the risk and impact of removing them from your portfolio. Step 2: Reallocate funds from fossil fuels to industries with strong renewable energy commitments or innovative sustainability solutions. Step 3: Monitor the performance and sustainability impact of the new investments to ensure they meet your goals.

If you want your investments to walk the Paris Agreement talk, engage with the companies or funds you're backing. Engagement is like using your investor influence to push them towards greener practices – things like setting emission reduction targets, being transparent about climate risks, or boosting their green initiatives. You can talk to these companies through voting, dialogue, resolutions, or teaming up. Platforms like ShareAction or InfluenceMap can help you keep tabs on how well your investments are performing in terms of climate impact. It's like nudging them in the right direction and making sure your money supports sustainable and responsible choices.

A great way to align your portfolio with the Paris Agreement is by simply investing in sustainable investments funds that track Paris-aligned benchmarks (PABs) or even Climate-transition benchmarks (CTBs). This is popular among article 9 (Sustainable investment) funds under the EU sustainable finance disclosure regulation (SFDR). Actively seek out funds that tracks PABs.

As an investor, engaging with firms or funds is a proactive strategy to guarantee that your portfolio is compliant with the Paris Agreement. I've seen directly how powerful investor influence can be in driving company transformation. Investors may push corporations to adopt robust climate policies, establish aggressive emission reduction targets, and transparently report on climate risks by engaging in consistent discourse and leveraging platforms such as ShareAction or InfluenceMap. Active participation not only promotes a more sustainable economy, but it also connects investments with long-term climate goals, improving your portfolio's overall resilience and sustainability.

Active engagement requires time and knowledge about shareholder rights and corporate governance. To be effective, investors must collaborate with others, perhaps through investment coalitions, to amplify their voice. They need to be persistent in dialogue with companies, attend shareholder meetings, and vote on resolutions. The below steps could be deployed: Step 1: Research the environmental policies of the companies within your portfolio and prepare to address any shortcomings. Step 2: Join shareholder advocacy groups to pool influence and push for more sustainable corporate practices. Step 3: Exercise your shareholder rights by voting on sustainability-related resolutions and attending annual meetings to voice concerns.

The engagement with companies or funds is practically the best option available to the investors. This can be done with encouraging the adoption of sustainable practices such as setting net zero goals, assessing the climate and nature - related risks across the portfolio, providing sustainable services such as green deposits, green loans, etc. Also there are platforms such as ShareAction, InfluenceMap, etc. to visualise the climate performance of the investments.

To ensure your investments stay in tune with the Paris Agreement, make it a habit to regularly check and adjust your portfolio. Assess how your investments are performing in relation to climate goals and tweak your strategy accordingly. Use indicators like temperature alignment or carbon intensity to see how your portfolio contributes to the Paris Agreement.Frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) or the EU Taxonomy can be your guides for reporting and communicating how well your investments align with climate goals. It's like keeping a close eye on your investments, making sure they match the climate-friendly tune, and adjusting the volume as needed.

This is important as generally, funds can be reclassified. For example, under the EU's Sustainable Finance Disclosure Regulation (SFDR), Article 9 (sustainability investment) funds that pursue sustainable environmental or social objectives can be reclassified into Article 8 (funds with ESG characteristics) which are not tailored toward specific sustainable objectives or even Article 6 (normal) funds. Always stay updated on the progress of your portfolio and be ready to make needed adjustments.

This requires a commitment to ongoing education and staying informed about the latest sustainability trends and data. Investors should set up regular review processes, utilize ESG integration tools, and perhaps engage a financial advisor with expertise in ESG monitoring to maintain the alignment of their portfolio with their sustainability goals. Simple steps to follow: Step 1: Schedule regular portfolio reviews, including a thorough assessment of ESG scores and sustainability performance. Step 2: Adjust your investment criteria based on the latest climate science and policy developments. Step 3: Engage with financial advisors or ESG analysts to gain deeper insights and make informed adjustments to your portfolio.

It is critical to examine and analyze your portfolio on a regular basis to ensure compliance with the Paris Agreement. Consider the function of smart metering in building values as one effective way. Smart metering can provide extensive insights into a building's energy usage, perhaps leading to better energy management and increased property prices, attracting more investors. When analyzing investments, it is critical to examine frameworks such as GRESB, CRREM, EPRA, and certifications like as BREEAM and DGNB. These frameworks and certifications give extensive criteria for assessing investment sustainability and performance, assisting investors in making informed decisions that promote the transition to a low-carbon economy.

Invest in verified ESG-focused funds: There are a number of mutual funds and exchange-traded funds (ETFs) that are specifically designed to invest in companies that meet certain environmental, social, and governance (ESG) criteria. These funds can help you to align your investments with the Paris Agreement by investing in companies that are committed to reducing their greenhouse gas emissions and adapting to climate change. Make sure the fund is verified by an accredited third party to eliminate the risk of greenwashing and to ensure transparency and accountability.

As we look ahead to aligning investment portfolios with the Paris Agreement, it's vital to consider the evolving landscape of international climate negotiations, particularly the upcoming COP28. This event will likely introduce new commitments and frameworks, influencing the trajectory of sustainable investments. Investors should stay informed about these developments to proactively adjust their strategies and continue to drive positive change. The integration of upcoming policy shifts and international climate goals will be critical in ensuring that investment portfolios contribute effectively to global efforts to combat climate change and achieve a sustainable future.