1. Climate is a material risk to investments

Investors have a fiduciary duty to manage material risk that can undercut financial performance.

The potential financial impacts of climate change are now widely reported. It is understood that climate change beyond 2°C would have very damaging economic impacts on all asset classes in ways that could not be hedged. A study by Cambridge University, for instance, found future climate risks could lead to economic shocks and losses of up to 45% in an equity investment portfolio value. The Economist Intelligence Unit found warming of 5°C could result in US$7 trillion in losses – more than the total market capitalization of the London Stock Exchange – while 6°C of warming could lead to a present value loss of US$13.8 trillion of financial assets, roughly 10% of the global total.

3. Mission alignment

Fiduciaries of mission-based organizations, such as charities and faith groups, have additional responsibilities to ensure that their investments do not undermine their missions. Organizations whose objectives focus on human development and health, alleviating poverty, protecting ecosystems, and other similar aims, must consider whether their investments worsen these issues. If the answer is yes, they must divest according to UK law.