Willis Towers Watson’s Investments believe in “investing today for a more sustainable tomorrow”. This is now more important than ever as the whole economy transitions to a net zero and climate-resilient future. Climate is a financial risk; it is far-reaching, systemic and foreseeable. As investors, we have a really important role to shape the system going forward – to steward this whole economy transition.
- The principle: Achieving better financial outcomes for clients
- A just transition to a net zero and resilient future
- Changing the ‘system’ through engagement and collaboration
- Measurement: Essential that we are held to account via multiple metrics rather than one
- Helping other investors with their own net zero pledges
We believe that working to achieve net zero by 2050 is completely consistent with the financial goals we have been given by our clients, so we have already embedded this in our investment process and ultimately in the portfolios we are managing and stewarding.”Craig Baker | Global Chief Investment Officer
We believe that climate change will materially affect the global economy and capital markets in both the short term (as policy changes and the transition process is priced into markets) and long term (as the real world impacts of global warming increase). As a fiduciary our focus is always on our clients’ financial outcomes, and we therefore believe it is important to consider and manage the financial impact of climate change on our clients’ investment portfolios.
- Risk adjusted returns: Being strategically ahead of a low-carbon transition will, in our opinion, significantly improve risk-adjusted returns for our clients. This will come from two sources – ‘better beta’ due to more effective stewardship and ‘alpha’ as the mispricing of climate issues is resolved.
- Source of alpha: We think that understanding this transition will be one of the biggest sources of alpha across all asset classes and that this opportunity is likely to be greatest in the next few years as the data is not yet well understood and prices have not yet fully reflected the likely path for the world. We will therefore target pathways that seek a reduction in emissions of significantly more than 50%* and a doubling of our allocation to climate solutions** between 2015 and 2030, consistent with the goals of the Paris Agreement.
- Pace of trajectory: We will look to be compliant with the principles currently set out in the Paris Agreement around the pace of the trajectory to net zero, with limited reliance on the use of Negative Emission Technologies***. We will also aim to ensure that the principles we follow and the measures we use to assess progress are consistent with IIGCC’s Net Zero Investment Framework.
It needs to be recognised that it is not in our clients’ financial interests to force ourselves to always be ahead of the pathway to net zero regardless of market pricing or the magnitude of the risk posed by climate change. We believe that the important things for the long-term financial outcomes for our clients’ portfolios are the destination and the overall trajectory of decarbonisation, rather than the position at every point along the path to net zero.