Invesco sets out ambitions in inaugural climate change report

'Our clients are increasingly placing climate issues at the centre of their investment decisions'

Invesco has updated its clients on its ESG progress across its global business with its inaugural Climate Change Report, which also sets out its ambitions for the future

In line with the Taskforce on Climate-related Financial Disclosures (TCFD), the framework which enables firms to report on their financial risks and opportunities when it comes to climate change, the group is calling for TCFD to be adopted by asset and investment managers.

Invesco signed up to the TCFD framework with two aims; to leverage it for engagement activities, and to implement the group’s own climate change risk management and reporting process.

Marty Flanagan, CEO and president of Invesco, explained in the report: “Our clients are increasingly placing climate issues at the centre of their investment decisions. They want to protect their savings from climate-related risks. They want to invest in resilient and sustainable businesses. We need to be part of the solution, so we have made climate change a priority of our ESG Investment activities and of our corporate responsibility. 

“As investors across equity, fixed income, real estate and multi-asset solutions, we aim to identify how the impact of climate-related risks and opportunities directly affects our portfolios and individual assets. Considering climate risk is part of our overall investment process. Furthermore, we are committed to continuous improvement in environmental management within our own operations.”

Cathrine De Coninck-Lopez, Invesco’s global head of ESG, also said looking at government and corporate activity as a whole, not enough climate policy action has been taken to meet the targets of the Paris Agreement, and there is no clarity on the timing and scope of any transition to a low-carbon economy.

The uncertainty, she said, has only been worsened by the Covid-19 pandemic.

“While climate change is not slowing down, financial decisions are being made in response to the pandemic; decisions that will have a lasting impact on the global economy. 

“As Christiana Figueres [the executive secretary of the United Nations Framework Convention on Climate Change (UNFCCC) from 2010 to 2016] has said: ‘…the Covid-19 pandemic has collided with the climate change emergency. The pandemic induced financial decisions made over the next 12 months will shape the global economy for the next decade. We must integrate the solutions to both crises into a coherent response. After immediate health, safety and social protection measures, inclusive recovery programmes must propel the global economy towards sustainable growth and increased resilience.’

“Such solutions are urgently needed, with the financial risks and opportunities associated with climate change becoming increasingly apparent.”

Current framework at Invesco

The report said Invesco is focused on four key long-term objectives, which may be affected by climate change. Therefore, this is addressed in their ESG strategy and its work in integration, engagement, advocacy and investment solutions.

The key objectives and how climate change is addressed for each are listed below:

  • Seeking to achieve strong investment performance There is mounting evidence that climate change risks and opportunities could have a material impact on the firm’s ability to deliver strong, long-term investment performance for clients, it said. Assessing and managing climate risks and opportunities as part of the investment process is therefore “essential to achieve strong, long-term investment performance”. The group seeks to deliver this through its ESG integration approach, which recognises the distinct investment capabilities and investment philosophies across the business, as well as through proxy voting and engagement.  
  • Being instrumental to our clients’ success The demand for ESG and climate-related products and solutions is growing rapidly around the world, said the report, many of clients have made commitments to climate change, for example through the NetZero Asset Owner Alliance. To continue meeting clients’ needs, it is vital that the product and investment capabilities reflect this evolution and Invesco is including the development of its ESG and climate-related solutions in partnership with clients, developing thought leadership and educational materials as well as developing ESG and climate reporting. 
  • Harnessing the power of our global platform Climate change can impact the way any company operates, and Invesco is not immune, it said. Addressing climate risks across our operations, for example through lowering emissions for its buildings, can also ensure a reduction in costs. This, in turn, will enable us to allocate resources to opportunities that will benefit clients and the business.
  • Perpetuating a high-performance organisation A clearly defined culture and purpose are increasingly important when it comes to attracting the best talent to join a company, the report said, and younger people entering the job market are increasingly looking to work for companies with a strong social purpose. By placing climate change at the heart of its approach to investments, dealings with clients and way of operating, Invesco said it can offer an attractive and purposeful working environment.

Integration

In order to ensure ESG credentials are fully integrated throughout the business, Invesco has implemented a number of measures including a Corporate Responsibility Committee (CRC), comprised of members of the executive leadership team, who meet to drive the strategy, oversight and governance of internal programmes, which include progress against climate change.

There is also a Global Investment Council (GIC), made up of CIOs and MDs from across Invesco’s global offices, and is co-chaired by CEO Flanagan, and head of investment SMD, Greg McGrevey, which also has an ESG Sub-Committee focusing on responsible investment issues, including climate change.

The firm also has an Environmental Management System (EMS), to ensure governance follows best practise within the firm. The EMS is a framework that includes oversight for health, safety and environmental issues (including all initiatives aimed at reducing the company’s climate impact), management of day-to-day environmental impact , management of environmental data on matters such as energy use, greenhouse gas emissions, water consumption and waste production, and internal and external environmental reporting.

In terms of ESG integration into the investment process, the report said: “Assessment of climate change aspects is incorporated by such teams into the wider investment process as part of a holistic consideration of the investment risk and opportunity.”

It added just how they consider climate change risks and opportunities will vary according to the strategy, sector and asset class, but the core components of our ESG philosophy are as follows:

  • Materiality The financial risks and opportunities related to climate change will not be felt evenly by all companies and countries. This is why it is important investment teams consider circumstances in which climate change is most likely to be material to their investments. 
  • ESG potential Invesco’s approach seeks to encourage companies that are on the path of decarbonisation. This is achieved by taking into account ESG potential or momentum.
  • Engagement Engagement and dialogue with investee companies is fundamental, allowing investment teams to better understand companies’ approaches to climate change.

Invesco added in the report that by “referencing carbon-neutral metrics and increasing our climate change engagement with clients and investee companies, we have demonstrated our ability to provide investors with compelling investment solutions”.

Product and collaboration

Invesco highlighted its commitment to providing investment solutions that also tackle climate change by launching ETFs, self-indexing products, bespoke discretionary mandates all focused don decarbonised portfolios.

The group plans to increase its climate offering by working in partnership with clients and industry partners to define climate focused product solutions.

In terms of collaboration, the report said: “Invesco recognises the importance of participating in collaborative investor engagement alongside our own one-to-one company engagements. These initiatives have helped us to shape our dialogue with investee companies and the topics covered have provided the basis of a reference framework for our climate risk assessment.”

Invesco is a member if the Institutional Investors Group on Climate Change (IIGCC), the World Economic Forum Coalition for Climate Resilient Investment (CCRI) and played an active role in the Climate Financial Risk Forum, chaired by the FCA and PRA in the UK.

“Through membership of international organisations, we are proactively engaged in furthering the cause of sustainability and responsible compliance within potential and actual investments,” the report said.

Achievements and ambitions

The Invesco report said its ESG strategy is very much in the development stage still; despite making significant progress the firm wants to commit further.

It listed its current targets are by 2023 integrating ESG into 100% of its assets under management and include climate-related metrics into client reporting over the same timeframe.

In terms of energy consumption and greenhouse gas emissions, Invesco said its environmental impacts come from two main sources; energy usage in offices and business travel.

However, thanks to energy efficiency implemented across offices in 2019, Invesco reduced scope 1 and 2 emissions by 22% against a 2017 baseline. The majority of reductions in 2019 were attributable to efforts at the Henley office in the UK, including adjustments to automatic lighting, heating and cooling settings.

Additionally, the group isolated all lighting controls on one floor in the Toronto office to keep lights off unless needed, and removed energy-intensive desk lamps in 90% of the workspaces in the Frankfurt office. 

Air travel made up 99% of our business travel emissions, with rail making up the other 1%. While there was an increase in business travel emissions between 2018 and 2019, Invesco reported a 2% reduction in scope 3 emissions overall compared to the 2017 baseline.

Furthermore, in 2019, Invesco offset a portion of its 2018 corporate air and rail travel that was booked via American Express. Through these offsets, it invested in a landfill energy conversion project at Spartanburg Landfill Gas in South Carolina, US, and a conservation project at Rimba Raya Biodiversity Reserve in Indonesia. The group is also assessing programmes to offset its 2019 emissions.

Looking ahead, the firm said it continues to align its current carbon dioxide emissions reduction initiatives with the Carbon Trust Standard.

“This voluntary certification scheme and mark of excellence enables organisations to demonstrate success in cutting their carbon footprint. We are currently pursuing the Carbon Trust Standard recertification process for our offices in the UK.”

CEO Flanagan concluded in his note: “We see our TCFD reporting as a journey – one that starts with this first Invesco Climate Change Report, defining March 2019–March 2020 as our base year and setting out our ambitions for the future.”

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Natalie Kenway

Natalie is global head of ESG insight for ESG Clarity and has been an investment journalist for 16 years. She won Editor of the Year at the Aviva Investors Sustainability Media Awards 2021, and was Winner...