This report was based on PRI observation that “not all investors today fully recognise the likelihood and impact of an IPR outcome. Instead, most investors (and companies) are anchored around concrete policy commitments, as reflected in the NDCs, leading to inadequate pricing of climate policy risks as a reflection of the incomplete action to date. However, an IPR would involve a step change in both the level and coverage of climate policy action, with a period of subsequent market repricing exposing investors to significant volatility and potential losses. Therefore, a better understanding of how the low-carbon transition would impact financial markets is essential.”
The potential investment impacts explored in the technical papers are presented across three phases of an IPR, including the pre-announcement period (Phase I), the post-announcement / high volatility period (Phase II), and the implementation / stability phase (Phase III).
“The paper sets out a framework for embedding an IPR climate transition into SAA and portfolio construction processes, combining top-down with bottom-up analysis. It sets out the pillars of SAA processes, and the associated IPR actions that these might necessitate, emphasising, in particular, the need to be forward looking, to stay focused on the long term, to utilise scenario analysis and to link these pillars through to implementation and portfolio construction.”