1、Hermes Investment Management 2019 CLIMATE-RELATED FINANCIAL DISCLOSURES REPORT 2019 For professional investors only www.hermes- CLIMATE-RELATED FINANCIAL DISCLOSURES REPORT 20192 Foreword from Saker Nusseibeh, Chief Executive At Hermes, we believe that the investment management industry could be a p

2、otent force in building a better world; but today that potential is largely unfulfilled. The urgency for action on the climate crisis could hardly be greater. The scientific consensus urges us to act quickly, effectively and in earnest if we are to limit the devastating impact that climate change wi

3、ll have on our planet. The investment management industry sits in a unique position, where its actions could continue to compound the issues we currently face, or it could instead use intelligent and considered stewardship of capital to effect genuine and positive change. We have a responsibility as

4、 an industry, and indeed as a business, to make the right choice. Clearly, climate change presents risks to us as a business. It is paramount to us that we identify and monitor these risks closely so that we are able to mitigate them to the benefit of our clients, their employees and ultimately, soc

5、iety at large. But it also presents opportunities opportunities we have a duty to play a full role in realising. Transparency and accountability are both vital components in driving these changes, which is why we welcome the reporting recommendations presented by the Taskforce on Climate-related Fin

6、ancial Disclosures (TCFD.) In this report, we lay out our approach to identifying and managing climate risks and seizing opportunities as a business, ranging from our involvement at the policy level in the development of climate-rated initiatives, to the way we ensure that everyone at Hermes factors

7、 the weight of the climate emergency into the work that they do. We are proud of the progress we have made, but we recognise that there is plenty more work to be done if we are to harness our potential as an industry in tackling the climate emergency before its too late. HERMES INVESTMENT MANAGEMENT

8、3 Climate change is now at the heart of European and UK financial policy, with a host of initiatives from the European Union, national governments and financial regulators making it an issue that is impossible for investors to ignore. Driving these actions is the increasing certainty that climate ch

9、ange is man-made and will have serious impacts on society and the global economy. The scientific consensus is that we must limit average temperature rises to 1.5C in order to avoid the worst impacts of climate change. The Intergovernmental Panel on Climate Changes 1.5C report warns that in order to

10、stabilise temperatures, greenhouse gases (GHG) emissions need to reach net zero by mid-century. And yet, the World Meteorological Organization and the United Nations Environment Programme warn that the concentration of GHGs in the atmosphere continued to rise in 2018, and that the emissions gap betw

11、een what we are emitting and what we should be emitting is as wide as ever. If temperatures were to rise by 4C, it would cause an estimated $23 trillion in losses over the next 80 years. To avoid a 1.5C overshoot, global net anthropogenic CO2 emissions must decline by 45% from 2010 levels by 2030, r

12、eaching net zero around 2050. If we accept current governmental commitments to limit climate change, temperatures can still be expected to rise 3.2C above pre- industrial levels, with devastating effect. Physical risks: The USs National Oceanic and Atmospheric Administration reports that 2019 was th

13、e second hottest year on record, and the physical impacts of climate change are already becoming clear, with events including acute, disruptive impacts such as the devastating wildfires in Australia and California, heatwaves in the Arctic and increasingly frequent and devastating typhoons and hurric

14、anes. There are also more gradual ongoing (chronic) impacts such as rising sea levels, an increase in vector-borne disease and reductions in agricultural yields, along with more floods, droughts and other extreme weather events. Transition risks: Urgent action to reduce further and, in time, elimina

15、te new GHG emissions and will require significant structural transformation of the economy, both at a global level and locally. The investment industry has a significant part to play in tackling both issues as the funding engine of economic development. This implies that significant changes be made

16、to how we power and heat our homes and businesses, fuel our cars, planes and ships, grow our food and use resources of all types. Many of the opportunities for a managed, gradual transformation of the economy have gone. Many assets that have been financed and are being built or operated today could

17、become “stranded” as a result of climate change and efforts to tackle it. We are already seeing changes to industries such as power and automotive, with the roll-out of renewable energy and electric vehicles. There will be further upheavals in sectors ranging from agriculture to aviation. Inevitably

18、 there will be winners and losers at international, national, sectoral, company and individual levels. For investors, climate change creates risks such as investing in fossil fuel-focused assets that then become stranded because of changes in demand, policy and regulation. We have seen a significant

19、 change in sentiment towards climate change over the past year, with the Extinction Rebellion protests and global school climate strikes spearheaded by Greta Thunberg signalling that this is an issue on which everyone from policymakers to producers can expect to be held to account. This has translat

20、ed into strengthening regulatory and political action, ranging from renewable energy targets at city level to the growing number of governments committing to net zero emissions targets. For example, Frances energy transition law makes climate reporting obligatory, while under the Netherlands Nationa

21、l Climate Agreement, Dutch financial institutions have committed to measure, monitor, manage and reduce environmental footprint of their balance sheets. Meanwhile, the European Union has created a sustainable finance action plan, a sustainable taxonomy and new climate benchmarks for investors to enc

22、ourage more sustainable investment. The Taskforce on Climate-related Financial Disclosures (TCFD) was launched in 2015, and published recommendations for companies in 2017. The recommendations call for companies to outline the climate risks they face physical (extreme weather events etc) and transit

23、ion risks (the regulatory and policy responses to climate change) in four areas Governance, Strategy, Risk Management, and Metrics and Targets. Adoption of the recommendations, which are currently voluntary, has been slow to date and dominated by the financial services sector. Hermes and the TCFD Ba

24、nk of England Governor Mark Carney has said that markets should expect climate disclosure to be mandatory by 2022. The Climate Financial Risk Forum (CFRF) was set up “to build capacity and share best practice across financial regulators and industry to advance financial sector responses to the finan

25、cial risks from climate change”. The Forum, which brings together senior members of the financial sector, has four working groups tasked with producing practical guidance on a key area. The groups focus on risk management, scenario analysis, innovation, and disclosure. Hermes is a member of the foru

26、m and CEO Saker Nusseibeh chairs the Disclosures Working Group. The CFRF is a great example of peer- to-peer learning and we expect it to shape the discussions of global financial regulators on climate change risk management and disclosures. BACKGROUND CLIMATE-RELATED FINANCIAL DISCLOSURES REPORT 20

27、194 Status of TCFD implementation In terms of our own implementation of TCFD, we have identified areas in the TCFD recommendations where we are doing well, where we need to improve and where we are at the very earliest stages of developing responses. The diagram below shows the TCFD recommendations

28、and how we currently perform on integrating each one. Those coloured yellow have only limited disclosure and therefore our coverage needs to increase and be of better quality in these areas. For those coloured red, there is no disclosure and methodologies are still being developed. The diagram ident

29、ifies our efforts to describe the resilience of our strategy in different climate-related scenarios; to describe the targets we use to manage climate-related risks and opportunities, and how we perform against them as priority areas to focus on. GovernanceStrategyRisk ManagementMetrics and Targets D

30、isclose the organisations governance around climate- related risks and opportunities. Disclose the actual and potential impacts of climate-related risks and opportunities on the organisations businesses, strategy, and financial planning where such information is material. Disclose how the organisati

31、on identifies, assesses, and manages climate-related risks. Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. Recommended DisclosuresRecommended DisclosuresRecommended DisclosuresRecommended Disclosures a)D

32、escribe the boards oversight of climate-related risks and opportunities. a)Describe the climate-related risks and opportunities the organisation has identified over the short, medium, and long term. a)Describe the organisations processes for identifying and assessing climate- related risks. a)Disclo

33、se the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process. b)Describe managements role in assessing and managing climate-related risks and opportunities. b)Describe the impact of climate-related risks and opportuni

34、ties on the organisations businesses, strategy, and financial planning. b)Describe the organisations processes for managing climate-related risks. b)Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. c)Describe the resilience of the organis

35、ations strategy, taking into consideration different climate-related scenarios, including a 2C or lower scenario. c)Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organisations overall risk management. c)Describe the targets used by the

36、organisation to manage climate-related risks and opportunities and performance against targets. Good disclosure - good coverage to date Limited disclosure - coverage to be increased, quality to be improved No disclosure Limited disclosure, methodologies in experimental phase HERMES INVESTMENT MANAGE

37、MENT5 Board level responsibility: Hermes Fund Managers Limited Board and Executive Committee Oversight:Head of Policy legal and regulatory risks Regulatory changes and mandatory legislation affecting licence to operate or management practices in certain sectors or geographies. Medium termRisks that

38、could cause impacts in 2-5 years from now; legal and market transformation risks Regulatory changes and mandatory legislation affecting licence to operate in certain sectors or geographies; Market-led changes, emerging new opportunities, obsolescence of certain products and services affecting certai

39、n sectors; Risk of stranded assets. Long termRisks that could cause impacts in 5 years and beyond; legal, market transformation risks and extreme weather events In addition to the above: Obsolescence and stranded assets across a range of assets, sectors and geographies due to regulatory changes, mar

40、ket transformation or extreme weather events; Extreme weather events impacting defined geographical locations and whole regions and supply chain disruption affecting large number of sectors; Impact to infrastructure and real assets, ranging from business discontinuity costs, refurbishments and rebui

41、lding costs, to obsolescence and destruction; Impact to insurance premiums or ability to insure assets in certain locations at risk. Source: Hermes STRATEGY HERMES INVESTMENT MANAGEMENT7 Our analysis highlights the significant legal and regulatory risks which we face in the short term. Chiefly, this

42、 refers to regulatory changes and legislation that affect a companys licence to operate or management practices in certain sectors or geographies. There are also considerable risks associated with market transformation which will occur as new opportunities emerge during the transition to a resilient

43、 and net-zero carbon economy requiring a significant amount of capital to be reallocated towards new growth markets. There are also clear risks associated with the fact that companies will face higher operating costs from carbon pricing or taxes, or the costs of implementing new regulatory standards

44、. Companies may also have to pay higher insurance premiums or struggle to insure assets in certain locations at risk. Changes in market demand mean some products and services in certain sectors may become obsolete and some companies may lose their social licence to operate. Asset price dislocation w

45、ill increase particularly for those entities in danger of becoming stranded assets, which includes deeply carbon oriented companies. As extreme climatic events become more frequent, they may cause either obsolescence or stranded assets across a whole range of sectors, assets and geographies. Extreme

46、 weather events could affect defined geographical locations or, in some cases, whole regions, and significantly disrupt the supply chains of a large number of sectors in the economy. For investors in listed markets, the implications of climate change on investor decisions will differ sector by secto

47、r. The automotive and power sectors, for example, both have significant value at risk from the transition to a more sustainable economy, but also significant opportunities from electric vehicles and renewable energy, respectively. By contrast, the oil and gas sector will be one of the hardest hit, w

48、ith little upside. Even if an oil company can achieve an economic return, it might not be in beneficiaries interests to own its shares if the company worsens climate change and this creates a strong pressure on policymakers to clamp down on the industry. The impact of climate-related risks and oppor

49、tunities on business strategy and financial planning Management of climate risk and opportunities that arise from the transition to a low-carbon economy, is fully integrated and formalised within our compliance, risk management and investment management procedures, and supported by the Responsibility Office and the CCWG. We have integrated compliance with the TCFD recommendations within Hermes climate risk and opportunities management approach. Our approach covers our public equities and credit, private real estate and infrastructure assets. It is based on ou