Sustainable Growth Podcast

Why climate risk is a wake-up call for investors

Episode 10, Season 7

Why is climate change a systematic risk, and how could it impact investors? In this episode, we speak to Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change (IIGCC) about IIGCC’s current role, mission and journey, as well as how Climate Action 100+ has catalysed the shift from target setting to implementation by engaging with companies. Stephanie also explains how IIGCC enables investors to address and manage climate risks, how much progress has been made in the past two decades, and the importance of detecting and combatting policy barriers that are stopping progress.

Host: Jane Goodland, Global Head of Sustainability at LSEG


  • Jane: [00:00:01] Welcome to today's episode of the Sustainable Growth Podcast. I'm your host, Jane Goodland, and I'm delighted to be joined today by Stephanie Pfeifer, who is the CEO of the Institutional Investors Group on Climate Change, otherwise known as IIGCC. She was also recently awarded an OBE for her work on climate finance. So we are in very good company today in the chat. We get into the mission of IIGCC and its journey since Stephanie took the helm in 2005. It' s a great opportunity to reflect on the journey so far. We explore regional variations and we look at how Climate Action 100 has been engaging with companies to turn targets into action. So let's jump straight into it.

    Jane: [00:00:50] Stephanie, it is lovely to see you. I haven't seen you for a while, so it's great to have the opportunity to get together and chat. So, we've known each other actually for a really long time. I won't say how long, but you've been at the helm of IIGCC since 2005, which I think puts you in an amazing position to reflect on what on Earth's gone on in terms of sustainable investing and responsible investing, ESG, whatever you want to call it, over kind of a long period of time. So are there some reflections that you might reach in terms of when you look back from this perspective, what on Earth's happened? What are some of the big changes been from your perspective?

    Stephanie: [00:01:31] Thank you very much for the invitation and it's lovely to be able to chat to you. And I might go through the history, a little bit of where we came from since 2005 when I started with IIGCC and really IIGCC consisted of a small group of about 20 pension funds and asset managers representing around 1 trillion pounds in assets, and many of them had been brought together by USS from about 2001 actually, because the beneficiaries of USS, the university lecturers, had begun to question the risks that climate change might pose to their pensions. And so these investors were amongst the first to begin to see climate risk as a potential financial risk to their assets and to consider what might need to be done to address that risk. And so it was quite far from the mainstream topic that it is today. And so when we started, IIGCCs work was really quite heavily focused on trustee training, explaining the potential physical or policy or reputational risk from climate change. Of course, the potential opportunities that come from the energy transition. And, it wasn't rare that I went to a meeting with a climate sceptic. But our work really focused quite heavily on policy engagement and encouraging corporates to disclose. So, really pushing for an environment in which investors could more easily understand but also price the risks that companies were facing and to start factoring that into their investment processes. But it was a slow progress I would say, and then I think we had a real turnaround in 2015. Mark Carney, who was then the governor of the Bank of England, gave I don’t know if you remember that speech.

    Jane: [00:03:36] I do indeed. It's a favourite of mine because it's a landmark speech actually.

    Stephanie: [00:03:32] Absolutely. But what he did is he said, look, climate change is a systemic risk. It could impact financial stability of the whole system because we could at some point see a very forceful response from policymakers, companies, investors leading to, a repricing of assets if we don't take action. And so I think for the first time, a regulator was up there saying this is an issue, we need to start working on this. There was a real wake up call for investors and really sort of felt the change then in the investment community. And then, of course, we had the Paris agreement, after the disaster of 2009 when we had the failure at Copenhagen, we now had the Paris Agreement, adopted by 196 countries committing to limiting global temperature rise to well below two degrees. And so, we also had that shift in the sort of national internationally policy level, that has made a big difference as well. At the same time then or maybe a little bit later, we started really sort of seeing the beginning of sustainable finance regulation with the establishment of the high-level expert group in the EU. And again, it was sort of regulation is coming and investors need to take this very, very seriously. And it was also the decade that we had more and more evidence of the impacts of physical risk and the severity and frequency of floods and storms etc increasing. Followed then also by the IPCC report in 2018, which really highlighted the risks that if we go beyond one and a half degrees of warming, there would be catastrophic impacts to the world. So again, this reinforced the message that the global economy has to take action. All actors have to take action. We also had civil society make clear that this is really needed. And just to mention one champion, Greta Thunberg, we had that whole movement as well. And I think investors took note of that as well.

    Jane: [00:05:41] I mean there's been so many milestones along the way. Sometimes actually, when you're in it, it's quite difficult to see it. So actually, it's quite nice to reflect back, isn't it, and sort of say actually this has been a long time coming and you know, and now we're at this almost I wouldn't fever pitch might be kind of over exaggerating it a bit, but it does feel like that we've got this you know huge amounts of activity both internationally and then European policy and then we've got activity in the US and the UK. It feels like there's a bit of a fever pitch of activity going on right now. So what's IIGCCs role now? It felt like a trailblazer in 2005. So what's the job now?

    Stephanie: [00:06:21] I think in some respects it's still quite similar, don't forget. So we sort of had the pinnacle of actions at the COP in Glasgow. We've had countries commit to net zero. We had investors commit to net zero. We had companies commit to net zero. At the moment, we're sort of working against a slightly more challenging background coming out of the pandemic. But going into the Russian war in Ukraine, driving up energy prices, we've got the politicization of ESG in some areas as well. But nevertheless, I think investors are still focused on their responsibility to manage climate risk, the role they can play in managing in addressing climate crisis themselves in line with their fiduciary responsibility. So what we'll do is, as IIGCC is really to continue to support investors, to support our members with addressing those ongoing climate risks, the climate opportunities, starting with the commitments that they set, the processes they go through to set targets to their ongoing engagements with companies to encourage action and really drive that change in the real economy to supporting their advocacy with policy makers to really provide that enabling framework without which no one can move to net zero.

    Jane: [00:07:48] And you mentioned your members there. Can we just be clear about who they are and what the reach is actually, because I know that the tentacles have sort of spread far and wide now, haven't they? So tell us about that.

    Stephanie: [00:07:59] Yeah, I think the growth of our membership reflects the mainstreaming of climate change as an investment issue. And so we went from 20 members, as I said, in 2005, we've got around 400 now with around 50 odd trillion dollars in assets. And I think we're around across about 30 countries or so. So it has sort of really broadened and scope the membership it still consists mainly of asset managers and asset owners. We have some other financial service providers as well, and the base is very much in Europe, although we've also attracted members in the US and in Australasia because of course they have clients in Europe or they see what is happening in Europe and often Europe sort of has sort of led the way in terms of policy or in some cases investor action as well.

    Jane: [00:08:53] So you've got this broad membership across different countries and regions. So you're probably really well placed to give a view on the differences or similarities in different market places. And after all, you know, climate change doesn't really recognize those boundaries. And we know that in order to actually achieve progress and action on sustainability, it has to be collaborative, right? We have to have kind of systems and processes and actors that work together. So tell me a bit about that regional jigsaw puzzle.

    Stephanie: [00:09:25] Yeah, I think what you've seen at a sort of high level, if you look at sort of what happened in 2019 to 2022, we've actually had investors across the globe make commitments to net zero, but the scale and pace at which they can do that depends, of course, on the type of investor they are or where their clients are or where they are located and the policy environment within which they need to work. But I think we've seen quite a lot of progress globally and I can talk a little bit about the sort of the commitments that we've seen, but we can also sort of look at some of the differences in the policy environment and the kind of actions that spurred. But maybe if I start with talking a little bit about the different commitments.

    Jane: [00:10:15] Yeah, that sounds good.

    Stephanie: [00:10:16] Yeah, so what happened was in 2018, 2019, we actually had a group of our asset owners come to us and say, Look, we want to be part of the solution. What would it mean for us to make a commitment to supporting that global goal of net zero emissions by 2050? And we set up what's called the Paris-aligned Investment Initiative, where we're working with both asset owners and asset managers to consider the different methodologies and approaches that investors can use, to measure an increase their alignment with the goals of the Paris Agreement. And what we really tried to do was to identify the levers that investors have to influence the transition, be that in terms of policy or corporate engagement or how they manage their portfolios. And since then, we've actually founded two of the net zero alliances and what you see there is on the asset manager side, we've had 300 asset managers across the globe representing almost $60 trillion in assets, sign up to Net-zero asset managers and one of the Paris aligned asset owner initiatives that we run. Again, you've got 50 asset owners joining that one.

    Jane: [00:11:31] Do these alliances connecting with the Glasgow Financial Alliance for net zero as well?

    Stephanie: [00:11:35] Exactly.

    Jane: [00:11:36 ] There's probably lots of people out there thinking there's lots of alliances going on. How do these all fit together? But I think they do in a way, right?

    Stephanie: [00:11:43] Yeah, absolutely. So Gfanz provides the sort of umbrella framework where you're looking across what is happening across the financial sector. And so, the two I mentioned are two of the investor alliances.

    Jane: [00:11:57] And some are longer established ones, aren't they as well?

    Stephanie: [00:12:00] Exactly, exactly.

    Jane: [00:12:02] And so, the other initiative that you guys have been really instrumental in is Climate Action 100. So how does that fit into the overall puzzle?

    Stephanie: [00:12:11] If you look at what we did in 2020, we developed one of the investment frameworks, the net zero investment frameworks, which really sort of guides investors and what they can do to address climate risk and opportunity and align their portfolios over time to that global goal of net zero emissions. And there are two key-ways of doing that. One is to invest in climate solutions. The other is to support the decarbonization of the real economy. And a key part of that, of course, is stewardship, engaging with companies to help and support them through that transition. And climate Action 100 plus is a really good example of that. So that is a global initiative that was launched in 2017 at the Macron Summit in December of that year. It's an investor led initiative that really tries to encourage the world's largest greenhouse gas emitters to take necessary action on climate change. IIGCC was one of the co-founders, together with investors, notably Kelpers and four other networks. And we continue to support that initiative.

    Jane: [00:13:23] This is like a truly global thing then, right? Because presumably the companies who are in the spotlight of that initiative are all over the world. Right? This is not just a kind of a European or a US thing, right?

    Stephanie: [00:13:35] Exactly. It's global both because of the investors involved. And we now have over 700 investors representing almost $70 trillion in assets signed up to the initiative. And the focus list of 167 companies is also global. Now, IIGCC sort of helps manage the European part of that, and our colleagues at Ceres look after US companies. We have IIGCC, IGCC looking after Australasia and the PRI does a bit of everything.

    Jane: [00:14:09] So in practice, we've got the kind of companies who are on the focus list, then we've got the networks who are effectively helping to organize and deliver the initiative. So what happens in practice? What actually happens? You know, because I think this notion of kind of stewardship and engagement sometimes can be a bit esoteric and difficult to kind of get a handle on and on what actually happens. So is there are there I don't know, is there examples you can share or is that all secret Squirrel I'm not sure. But if you can give us some flavour, that would be good.

    Stephanie: [00:14:38] Yeah, sure, no problem. I mean, what holds the initiative together is that there were three high level global asks of companies which all the investors share. And those were to first of all implement a strong governance framework on climate change, which really articulates the boards accountability and oversight of climate risk. The second is most important, I would say, is take actions to reduce greenhouse gas emissions across the value chain aligned with the Paris Agreement. And then the third one is to provide enhanced corporate disclosure to enable investors to assess those company climate plans. So that is the sort of global goal and what happens then is, is more regional implementation where investors engage with those companies to support them. And it differs by region. You know, in Europe, of course, there's a history of a lot of private dialog. We've seen quite a few statements at the AGM as we've seen some resolutions as well. It differs by region, but I think overall the initiative has made quite a lot of progress. And I'm happy to talk a little bit about that as well.

    Jane: [00:15:55] Yeah, I mean if there's any examples of progress, that'd be great as well because I think, certainly when I think about this, you're focusing on the companies who are the heavy emitters. And so really, the type of engagement you're talking about effectively gets right to the heart of what that organization does in terms of how it derives, you know, how it creates revenue. And effectively the conversation is, well you might need to rethink how that happens in future actually, because, we can't kind of carry on with these kind of business models that we've had in the past. So these are crunchy conversations, I should imagine.

    Stephanie: [00:16:30] Yes and IIGCC, of course, not directly involved because that's very much the investors who need to engage with those companies and they will take their own investment and voting decisions. But what I can say is that Climate Action 100 Plus has, I think, really changed the conversation with those companies in relation to how they act on climate change. And what we've seen since 2017 is that, that conversation, that engagement with those companies has really played a significant role in accelerating that net journey of those companies. We’ve really seen clear progress around those three original engagement goals. So when we launched, for example, only five of those focused companies had actually set net zero emission targets by 2050. As of autumn, last year, those are the latest figures I have across the globe. We had three quarters of those companies set a net zero emissions by 2050 target at least for their scope one and two emissions. And over a third of those companies have set long term targets that align with a one and a half degree pathway. If you look at Europe, the figures are even better because all our focus companies have now set a net zero target and 81% of those cover scope three as well. And 40% of European focused companies have a short-term target aligned with a one and a half degree pathway. If you look at the other two high level goals that we had, the results are even better because we've got almost all focused companies. Over 90% have a board level committee responsible for climate change, and a similar number have also committed to the reporting to the TCFD framework. I mean, this doesn't mean we're anywhere near where we want to be given the urgency that we're seeing. But I think progress has been made. And as we sort of look to the future and we're going into phase two of the initiative, we're still working through all the details. But I think we now need to really shift from target setting to implementation.

    Jane: [00:18:51] That’s exactly what I was about to say, Stephanie, you took the words out of my mouth, actually, because I was thinking that absolute all of this is super important. You know, you've got to have the governance right. You've got to have the ambition. That's got to be kind of clear in a target. But it strikes me that what we all desperately are kind of looking for is that translating into tangible action. So what's the role of IIGCC or CA 100 in terms of really making that that pivot from pledge to action and really keeping up the pressure? How does that manifest?

    Stephanie: [00:19:33] Yeah I mean, the pressure will come from the investors themselves. But one of the things that we're going to be focusing at, IGCC in particular is, as well as supporting the investor with their engagement with individual companies. I think what's also really important is that we look at what are the barriers across sectors or between value chains. So are there policy barriers that are really stopping progress, or could we help drive more demand for green products so that supply of carbon intensive products is automatically reduced? So, for example, what needs to happen for demand for green steel to increase and how is that affected? So what we're going to add to Climate Action 100 plus as it has been over the last few years, or in phase one, if you will, is really looking at some of these sector strategies and the value chain interconnections and how do we bring the different players together, be that different companies and different sectors, or do we bring in policy makers together with investors as well to have that conversations to really see how you drive change?

    Jane: [00:20:46] Sounds like you've still got lots to do and I think it's I mean, it's amazing actually to reflect on your career in terms of IIGCC and taking it back to 2005 and bringing it right up to date. So much has happened. And it's so nice to be able to spend time with someone who's been operating this space for a long time because I think the progress is there. And I mean, it definitely feels like there's much more to do. But certainly we've come a long way. I'm sure there's some sort of quote I could give there but haven't got one. So, it's been fascinating talking to you today and it makes me feel quite reflective, in fact about where we've got to. So have you got any kind of parting thoughts or any sort of key things that you'd really like the different kind of parts of the ecosystem to think about as we move through this year and hurtling towards 2030 I suppose when a lot of the near term goals are kind of up. So what should we all be thinking about? What should be front of mind for us?

    Stephanie: [00:21:46] Well, I think we've just had the latest IPCC report, which highlighted that one and a half degrees is still just in reach and that it's more important than ever to do what is needed for us to be on track to get there. So I think, you know, as I've sort of tried to highlight, there's no one stakeholder that can solve this problem. So we need to all continue to work together and pull in the same direction and then we might just make it.

    Jane: [00:22:17] Yeah okay, well we finished then on a plea for collaboration and I think eternal optimism as well is required. So, Stephanie, it's been lovely talking to you. Thank you so much for coming and talking to us and spending time today and look forward to seeing what happens next with IIGCC. Thanks again.

    Stephanie: [00:22:35] Thank you, Jane.

    Jane: [00:22:37] So that's it for this week's episode of the LSEG Sustainable Growth Podcast. And if you're not already following us, give us a follow and rate us on Spotify, Apple Podcasts or any other platform. And if you've got any questions, comments or someone you'd like us to talk to next, then do drop us a line at and we look forward to seeing you next time.

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