In the Annex on Climate Change to the LPPI Responsible Investment Policy we state our beliefs in the material, systemic and idiosyncratic nature of the risks Climate Change could manifest in our investment portfolio over time. To help us begin to recognise and address these potential risks we have developed definitions for Transition and Physical Climate Risk. There is a broad understanding that in different temperature scenarios the physical and transition risks we face will differ.
Currently, our risk focus is directed at asset level. This complements LPP's investment style (based on fundamental analysis) and reflects our appreciation that idiosyncratic climate risks are especially material to real assets and are also context specific.
For direct investments in real assets, we seek to consider the key transition and physical climate risks that may pose hazards to the prospective asset and we interpret these as stresses which are relevant to the valuation. Our focus is on seeking to understand potential climate risk impacts in different situations.
Future plans include using the learning and insights we are gaining from introducing scenarios to our decision-making on individual assets to develop frameworks for more general thematic and sectoral thinking about climate risks. This reflects that we recognise some risks will be common across asset classes or relevant to multiple sectors. Insights being gained across different areas need to be captured and communicated in an efficient way that helps to inform, enrich and evolve our collective thinking and learning about climate change.