We measure and monitor the level of integration of our climate-related investment activities.

Green bonds

Green bond proceeds are used to finance environmentally sustainable projects and facilitate the transition towards a low-carbon economy.

By the end of 2019, we held USD 1.8 billion in green bonds. As part of our adaptation strategy, we expanded our mandate to also consider social and sustainability bonds. This enables us not only to support the environment, but also underserved groups or populations, thus generating a positive impact on society. Additionally, we increased the specific investment target to USD 4 billion, to be achieved by the end of 2024.

Absolute coal threshold

Coal assets are particularly carbon-intensive and susceptible to stranded asset risk given the long life of these assets, as well as the evolving regulations on carbon emissions. To ensure we actively manage such risks, we implemented an absolute coal threshold to identify large carbon emitters with a diversified business mix, where relative thresholds may provide inadequate guidance. Our willingness to tackle climate change challenges is reflected in our new, 2019 commitment to not invest in mining companies producing at least 20 million tonnes of coal per year and power utility generators with more than 10 gigawatts of installed coal fire capacity.

Carbon footprint of our investment portfolio

In line with TCFD guidelines, we monitor the carbon footprints of our corporate credit and listed equity portfolios on an ongoing basis as we have extended our internal tools to allow for interactive day-to-day analysis. We also monitor any coal-related activities in our private equity investments. For the carbon footprint, we use the metric “weighted average carbon intensity”, which defines the portfolio carbon intensity based on relative investment share.

The US credit portfolio remains below its corresponding benchmark in terms of weighted average carbon intensity, given its continued underweight in high carbon intensity names after divestments in the energy and materials sector.

Carbon footprint of our investment portfolio – US (bar chart)

Since 2018, the UK credit portfolio carbon intensity decreased, whereas the index carbon intensity remained approximately stable.

Carbon footprint of our investment portfolio – UK (bar chart)

The portfolio of listed equities continues to be significantly less carbon-intensive compared to the corresponding benchmark due to its focus on high quality companies with low-carbon intensity. Moreover, in 2019, the carbon intensity decreased as a result of the portfolio optimisation.

Carbon footprint of our investment portfolio (bar chart)
Carbon footprint of our investment portfolio – 2015-2019 (bar chart)

Since the end of 2015, carbon intensities in both the corporate credit and the listed equities portfolios decreased substantially as part of our fossil fuel divestment of more than USD 1.4 billion. In 2019, carbon footprints for both portfolios, the corporate credit and listed equities, further decreased.

Forward-looking carbon indicators

Companies may mitigate exposure to climate risk through adaptation to market forces or adherence to new and evolving requirements. In 2019, we therefore extended our capabilities further to analyse the impact of climate risk on investments, advanced our analytical toolset, and improved our monitoring of related risks and opportunities. For the corporate credit and listed equities portfolios, we focused on the most carbon-intensive sectors that are responsible for the vast majority of the portfolio carbon intensity.

The forward-looking indicators that form the basis of the climate risk analysis have been extended and refined. The extensions and refinements allow us to analyse climate risk-exposed industries down to the issuer level, which provides an important additional dimension to our carbon intensity analysis. These forward-looking indicators inform us about the preparedness of companies for a transition to a low-carbon economy, and identify potential leaders and laggards in such a transition.

Many issuers have set carbon reduction targets and are actively working towards lowering their energy consumption, which we consider an encouraging development. The analysis also shows that a transition to a low-carbon economy may be challenging and costly.