Climate change is a key area of our collaborative efforts because we believe it presents a clear and present systemic risk to investment portfolios and is being widely underestimated and mispriced in the market today. Climate change will affect all agents in the economy (businesses, governments and households), across all sectors, asset classes and jurisdictions, in our view. The risks will likely be correlated with, and potentially aggravated by, tipping points, in a non-linear fashion. This means the impact of these risks could be much larger, and more widespread and diverse than those of other structural challenges and developments.
We have to tackle this risk head on across the entire investment value chain from the overarching macroeconomic analysis, to security selection, through to our stewardship of client assets.
In 2019, Lombard Odier was a signatory to the Global Investor Statement to Governments on Climate Change, which calls on global leaders to strengthen their efforts to ensure they meet the Paris Agreement goals, accelerate private sector investment into the low-carbon transition and commit to improve climate-related financial reporting in line with the final recommendations of the Financial Stability Board’s (FSB) Task Force on Climate-related Financial Disclosure (TCFD). We continue to promote the objectives raised in this letter through our ongoing stewardship efforts.
Lombard Odier also supports the final recommendations of the TCFD. As asset managers with fiduciary responsibility, it is vital that we have as full an understanding as possible of companies’ ability and willingness to transition to a more sustainable economy. The TCFD recommendations will improve our ability to analyse material risks companies face and how well they are positioned for the transition to a decarbonised economy. The TCFD recommendations will be a key focus point for our own stewardship, but we believe it is critical that governments also commit to improving climate-related financial reporting by publically supporting the TCFD recommendations.
We also believe that stewardship plays a vital role in informing the investment process and enhances the value of clients’ assets. We use the Oxford Martin Principles as the guiding framework for our stewardship to ensure companies have understood and incorporated the required global path towards a net-zero economy in their strategy and practices. Our dialogue with companies also informs our investment decision making by seeking disclosure of additionality-based footprint metrics and TCFD-aligned reporting.
We continue to develop our research and analysis capabilities around climate-related risks and opportunities as well as temperature alignment.
One of our key priorities over 2020 will be to integrate this new information into our investment process and ensure our reporting frameworks are fully aligned with the recommendations of the TCFD.