Evidence-based climate impact: A financial product framework

Abstract

Emerging evidence suggests that institutional investors' climate-related exclusions are overwhelmingly concentrated in public equity relative to other asset classes. A concomitant body of evidence suggests that exclusions in public equity are unlikely to affect company behaviour nor to have a perceptible impact on real-economy emissions. This paper evaluates the available substantiation for investor impact claims across asset classes, including through stewardship activities and social discourse, and identifies gaps in research on private climate finance. From this analysis emerges a framework for the characteristics of a product that would combine the highest-impact levers – from sector focus and exclusion methodologies to asset class and investor engagement efficacy – to maximise the probability of institutional investor impact on real-world emissions. The paper concludes with a call for further research and the creation of a fossil fuel phase-out bond index with a variety of stewardship characteristics designed to maximise investor impact on company-level behaviour change, cost of capital for fossil fuel expansion and, ultimately, real-economy emissions.