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By Roger Highfield on

Can big finance combat Climate Change?

Trillions of dollars in assets have joined forces to steer the global economy towards net-zero carbon emissions. Our Science Director, Roger Highfield, talks about the power of big finance to curb climate change with Adam Matthews, Chair of the Transition Pathway Initiative (TPI), which tracks corporate decarbonisation.

Hundreds of the world’s biggest banks and pension funds – with combined assets worth $130 trillion – have committed themselves to a key goal in limiting greenhouse gas emissions, the UK government announced at the COP26 climate summit last year in Glasgow.

Since then, however, the war in Ukraine has laid bare the huge dependence of advanced economies and modern lifestyles on burning fossil fuels while the UN’s Intergovernmental Panel on Climate Change (IPCC) recently issued a stark warning that global carbon emissions now need to decline rapidly for the world to have a 50-50 chance of limiting warming to 1.5°C, the target of the ‘Paris agreement’ made in 2015.

I talked to Adam Matthews, the chair of the Transition Pathway Initiative, which is also used by the Science Museum Group to inform its sponsorship decisions. Adam is also Chief Responsible Investment Officer of the Church of England Pensions Board. His answers are in italics.


In Glasgow, at COP26, the announcement of GFANZ, the Glasgow Financial Alliance for Net Zero, captured a huge set of commitments from insurance companies, from banks, from pension funds and investment managers.

The $130 trillion of funds that made the commitment represents an astonishing proportion of the investable capital in the world, which is now aligned in common cause.

However, the key is how you then deliver on such commitments and what you do to bring real world emissions down. 

In that context pension funds such as ours serve the interests of many millions of people – and we invest to ensure that when people retire, they have a pension to live off. 

However, we are also clear that the way we invest should do no harm and that people need to be able to retire into a world that has not been ravaged by the extremes of climate change.

But the challenge is how do you achieve that?

Aside from the ambition to be net zero you need practical tools that can really guide the trustees and the investments teams in the decisions they make  on behalf of their members. You need to be able to discern what is credible and what is green fluff. 

With the Transition Pathway Initiative (TPI), we created a tool to do exactly that which is independent, transparent and academically rigorous. 

For this reason, we based it in the Grantham Research Institute at the London School of Economics. Importantly, TPI underlines the importance of public disclosure and only assess what the companies publish themselves.

Ultimately TPI is an accountability tool that at its heart enables us to understand the risk in our investments in public companies.

We are also using it increasingly to assess companies as they raise debt and, in time, we will be able to use it to assess the debt of governments.


TPI does two things. The first is it provides a guide as to whether a company management, its board and executive, are doing all the sensible things you would hope they would in understanding a systemic risk to their business. 

We assess the 16 most carbon intensive sectors such as steel, shipping, aviation and oil and gas and, in each, the threat of climate change means these businesses have to substantially change. 

We as investors therefore want to assure ourselves that the board and management are equipped, have policies and plans to navigate this multi-decade transition.

The second thing TPI does is to assess whether the company management has set emission reduction targets that are sufficiently robust and aligned to the goals of the Paris Agreement (to avoid dangerous climate change by limiting global warming to well below 2°C and pursuing 1.5°C).

Importantly, this is not just whether the company has a long-term target in 2050 but we also assess if they have short and medium-term targets aligned to a credible path to net zero, for example in 2030 and 2040.

It’s not possible to say a company is aligned to net zero purely on their long-term target. Their path to 2050 has to be aligned as well as their capital expenditure in pursuit of delivering those targets.

So, as an investor, TPI really equips you to understand which companies are positioning themselves to make the transition, which sectors are really moving and facing those risks and developing the appropriate plans, and which ones aren’t.

We can then make investment decisions based on that information to achieve our net zero goals as pension funds.


The messages from the IPCC – and scientists- can’t be any clearer in terms of urgency and the need for action now.

There is no time for delay, and it underlines how we can all have the long-term goal of the Paris targets, but the fundamental question is what do we do during this decade, this transition decade, which will really count.

It takes a while for the most up-to-date science to feed through to underlying scenarios that we base our assessments of company targets on say for the steel or aviation sector so there is a delay in the system to be aware of.

However, I often think the nature of the transition is the bit that’s lost in a lot of the public discourse – it is a transition, and it is about how we get from where we are today, which is our high-carbon society, to a future society that isn’t linked to oil and gas and has an alternative set of renewables that can meet our energy demands.

The urgency is clear, but we really need to ensure that we’re on a manageable pathway and the TPI can guide us in our engagement with high carbon sectors and companies to ensure we are exercising our stewardship of companies we own to align to the level of ambition science is telling us we need.

But there’s no pretending where we are on the global transition – we are off track from achieving net zero despite all the announcements in Glasgow.


It is important that the Paris targets are very much understood in terms of more than just the long-term target.  

As I have said, it’s about the journey to 2050 and therefore about the rigor of the shorter and medium-term targets that matter. These are key aspects of the TPI measurements.

While it is encouraging that you are now seeing companies setting long-term targets and this shows they have that ambition, there remains a large gap in aligning the transition pathway they are taking to arrive at that end goal. 

It’s concerning there aren’t more and that there are still so many that are not aligned.

Even so, that gap is closing. There is a lot more regulatory pressure on companies, there’s a lot more investor pressure too and you’ve also seen for the first-time investors removing directors of company boards because they’ve not been progressive enough on climate change.

Some companies will remain on a path that is inconsistent with the Paris objectives and in those instances, we need to take action as investors.

Does that mean you simply withdraw your shareholding and sell it to someone else as it doesn’t go back to the company?

Or do you refuse to provide finance for their bonds which may be a more effective lever?

Or do you wait for regulators to insist that the company addresses climate?

Or do you remove the directors of the company to get in ones that will take action? Well the answer is all of the above.  

In summary, it remains a concerning picture whilst at the same time it is important to acknowledge that things are starting to move in the right direction, and sectors like electric utilities are seeing genuinely aligned net zero targets in the short, medium and long-term. 

However, taken together we are still not moving fast enough.


There are a lot of ways investors are using the TPI to inform their decision making.

Many investors use it to help inform their voting as to whether they support a company director or not, whether they support the company accounts or transition plans. They are using it to adjust their own portfolios, whether they continue to hold shares with a company or not. 

One way we use TPI is in our passive investments.  These are a large proportion of our fund – almost a third – just under a billion pounds. 

Here we integrate the insights of TPI into a stock index that tracks the market. The Index uses the TPI data to then double investments in companies that have the most ambitious net zero targets whilst reducing the investments in those that have weaker targets or excluding those that simply don’t have targets.

We created this Index a couple of years ago and now you are seeing billions flowing into such an approach.

This really shows companies that if they transition then there is a positive here likewise if you don’t address climate, you are removing yourself from the market. 

Deadlines are also becoming important.

As one example, Climate Action 100+, a global investor initiative on behalf of 700 investors with $68 trillion in assets under management, focusing on engaging the 166 companies that are the most carbon intensive.

TPI provides the data to this initiative to judge the progress companies are making to net-zero. Next year, 2023, marks the end of the first phase of Climate Action 100+.

The result is that some companies have been hugely responsive to the 2023 deadline. But there remain companies that aren’t and last year you saw the first instance where three directors were removed from a very significant company (the ExxonMobil board of directors saw dissident shareholder Engine No. 1 ousting three board members and replacing them with three nominees with experience in energy transitions) and I would imagine that you’ll see a lot more examples of such approaches as well as investors voting down company transition plans because they’re not robust enough.

However, we also need to recognise that the situation in Russia is having an impact on engagement and if you look at the power sector, you are seeing a significant number of companies starting to align with the TPI approach.

But I think there’s a challenge, particularly in regions like Europe where you’ve got companies that were previously potentially turning off coal-fired power plants and transitioning to renewables coming under pressure from governments to maintain coal power because there’s a need to replace Russian oil and gas to provide energy security in the short-term.

The reality is that in the short term we may see some disruption of the transition pathways of some companies that potentially were previously on a path more aligned with Paris.

We need see how that plays out.  And, again, TPI will be important to understanding this. 

However, I think what’s happened in Russia will actually incentivise the transition to renewables. And with that will come an element of greater energy independence for some countries, particularly in Europe.


As a pension fund we do use disinvestment as part of our approach to climate change.

There are some sectors such as companies that only produce thermal coal or are involved in tar sands that clearly do not have a role in the transition and therefore we have no interest in holding their shares.

However, disinvestment is a blunt instrument that we deploy when we make a judgement that a company is not responding to our engagement and is unwilling to change. 

But the key difference is that whilst people have advocated selling out of whole sectors, we can now differentiate between companies that are genuinely trying to transition and those that are not.

There are companies in all high carbon sectors that are moving in the right direction. There may be legitimate questions as to whether it is fast enough, but they are clearly part of the future and the solution.

Therefore, we are willing to differentiate between those that are putting in place credible plans and those that are not.

With those that are not putting in credible plans before disinvestment you can obviously use other levers that you have as a shareholder and that you would give up when selling your shares to someone else (remembering you don’t give them back to the company). 

Fully exercising those stewardship tools is also key – and you have seen directors voted off boards and this I believe will become a key response.

But one further lever we have as investors is perhaps more effective but not often used and that is to deny the debt of a company. 

This is potentially far more effective and powerful a tool to use as companies come to the markets to raise debt – if this is routinely denied because they don’t have credible plans and targets, I suspect you will see a swift response from the board in response. More so than some investors selling their shares to someone else. 

In due course, I think a company that’s in a carbon intensive sector that comes to the market to raise debt will not be able to unless it can demonstrate it has got credible plans for alignment to net zero and tools like TPI will underpin that understanding.


We are about to open the doors of the TPI global Climate Transition Centre, which will mean that we can scale our assessments from about 500 companies at the moment to 10,000. 

This will mean we will be assessing the vast majority of the public markets.

We’ll also be covering the debt that companies seek to raise both from public companies and private companies, and we’ll also assessing government bonds and lastly the banks themselves.

So, you’ll see huge scaling of the breadth and the depth of TPI analysis.  


Publicly listed companies such as Shell and BP only represent a portion of the energy market and a lot of the other companies are private or state-owned entities.

You just have to look at the graphic from the TPI on the energy sector to see the extent to which it is dominated by state-owned companies such as Saudi Aramco. 

This underlines the challenge in how we manage the transition because the solution ultimately isn’t just simply an energy company selling all its own assets to a less accountable private or state-owned company that buys them and expands production.

In that instance you haven’t actually reduced real world carbon emissions and they are going up in less well-run companies.

This is actually happening now with the pressure on the public energy companies. They are selling some of their production to other operators and they have worse safety records and have started to extend the production rather than winding down that asset.

Therefore, we must focus our attention on all those sectors that demand energy.  

That means focusing on aviation, shipping, construction and so on. If you change demand, you change supply – as no-one is wanting your product anymore. This is known as “demand destruction”.

If you can reduce demand this way, you reshape the company supplying it and that enables companies to bring their decarbonisation strategy to life.

But this requires public policy to shift the needle, because in a lot of these sectors, public policy, is not aligned to net zero.

So, we need a much more joined-up strategy. In the past we have been over- focused just on the producers when we need to be focusing on the whole energy system to get us to real-world emissions reductions and net zero.


I understand the concern about the pace of the transition. I hear it from my own children, and I understand and share their frustration.

But, at the same time, if we just purely focus in on the energy sector, which should have targets and should have alignment, and we don’t address the demand for oil and gas in our society, then we’re not actually going to see real-world emissions reductions.

We’re going to see public companies, in effect, shift to being private companies, which we will have far less ability to interact with and are less accountable.

Therefore, you have to change what is being demanded to drive the change that way through auto, aviation, shipping and other high-carbon intensive sectors.

Another important factor to recognise that there are countries, like South Africa, where you have fossil fuel-based power systems and don’t have alternative renewables. They’ve got to have enough time to build this capacity.

And so, therefore, how do you support a country like South Africa to move from a coal-based power generation system that’s deeply inefficient, and has many power outages, to one that’s based on renewables?

These are just some of the sort of challenges of the transition that we need to own together whilst recognising the urgency of the science which shows that we’re going to have to move a darn sight quicker towards a low carbon world.