Executive summary
Achieving climate mitigation and adaptation goals of the Paris Agreement requires making finance consistent with a pathway towards low greenhouse gas emissions and climate-resilient development, as called for by Article 2.1.c of the agreement (UNFCCC, 2015[1]). This will necessitate that policy makers, standard setters and financial actors pay increased attention to the real-economy climate impacts of finance.
The OECD Guidelines for Multinational Enterprises on Responsible Business Conduct and related paper Responsible Business Conduct for Institutional Investors provides practical recommendations as to how investment managers and asset owners can undertake due diligence across their investee companies to identify and respond to environmental and social impacts, including climate change. Together they provide a comprehensive framework to understand institutional investor’s relationship to climate risks and impacts, which are directly linked to their investments and activities (including through their ownership in, or management of, shares in an investee company or asset). From this specific framework flows a number of RBC due diligence expectations for how institutional can identify, prevent, mitigate and account for how they manage and disclose climate risks and impacts.
In particular, RBC due diligence for investors consists of six main steps or supporting measures, which provide concrete recommendations on how to:
1. Embed climate considerations into investor policies and management systems, as a necessary foundation for ensuring that climate risks and impacts are adequately identified and managed.
2. Identify and assess climate risks, impacts and opportunities in portfolio, at asset, asset class and sector levels, to inform investors about climate risks and impacts associated with their investee companies and thereby inform their strategy and prioritisation for responding to those risks.
3. Seek to prevent or mitigate actual or potential climate impacts, including through engagement, active ownership and stewardship; and by responding to climate considerations through portfolio allocation.
4. Track implementation and results of due diligence, both when it comes to their own performance against their policies (including objectives and targets related to climate), as well as investee companies’ efforts in preventing and mitigating impacts.
5. Communicate how climate risks and impacts are addressed, as a way to demonstrate the level of ambition and effectiveness of an investor’s due diligence process towards its stakeholders.
6. Encourage investees to provide for or co-operate in remediation when appropriate.
In addition, the tool draws on a number of key climate-related frameworks, coalitions and methodologies to highlight the synergies between the RBC due diligence framework and its above listed steps with existing or excepted practices by institutional investors when it comes to managing and disclosing climate risks and impacts.