Pension scheme and investor project group formed to create tool to rank government climate performance

Investors will be able to use the framework to measure, monitor and compare sovereigns' current and future climate change governance and performance.

Work on the project will begin next month and the project team aims to pilot the assessment framework - the so-called ASCOR (Assessing Sovereign Climate-related Opportunities and Risk) - by the end of 2021.

The project group behind its development includes the BT Pension Scheme; the Institutional Investors Group on Climate Change (IIGCC); the Church of England Pensions Board; the Net Zero Asset Owner Alliance (AOA); the Principles for Responsible Investment (PRI); the Coalition for Environmentally Responsible Economies (Ceres); and the Transition Pathway Initiative (TPI), supported by Chronos Sustainability.

The framework tool will eventually be used to produce an annual public assessment of the climate change governance and climate change performance of sovereigns.

In a statement today (14 May) the group said these reports will "provide insights that support investors' research and decision-making" as well as giving them "a sound and cohesive starting point to analyse sovereign debt investments and engage with government officials and policymakers".

BT Pension Scheme chief executive Morten Nilsson said the idea for the project had been born out of the difficulties many investors faced in trying to achieve net zero with a heavy sovereign weighting in their portfolios.

He said: "For institutional investors wanting to manage their climate risk and achieve net zero goals, good quality analysis on all asset classes is a must.

"While significant progress has been made, one asset class which remains a challenge is sovereign debt which, for many institutional investors, can form a large part of their portfolios."

Nilsson added: "This initiative is seeking to create a way for investors to assess their sovereign debt exposure to these risks and opportunities and support engagement with international policy makers to drive net zero action."

Target-setting frameworks to measure asset classes more effectively are already in the works - such as the IIGCC's Net Zero Investment Framework - while the PRI has published guides focussing on ESG incorporation and engagement for sovereign bondholders.

The project partners now agree there is "a critical need" for an investor-led tool to provide a "common lense" to understanding sovereign exposure - and have called on other investors to get involved.

BT Pension Scheme head of sustainable investment Victoria Barron said: "We invite investors to join us in this project, in a year that will be critical to advancing action on climate change."

The AOA, Ceres, the IIGCC, the PRI, and TPI will consult their members throughout the project to ensure the framework remains aligned with all respective initiatives.

The group also said this consultation with members will assist the project group to maximise opportunities for a consolidated and unified approach among investors.

Investors who would like to express an interest in being involved should contact Joanne Lewis at [email protected] for further information.