Collaborative Sovereign Engagement on Climate Change

The initiative aims for investors to work collaboratively to support governments to take all possible steps to mitigate climate change, in line with investors’ fiduciary duty to mitigate financial risk and maximise long-term value of assets. This includes supporting countries to hold the increase in global average temperature to well below 2°C above pre-industrial levels and pursue efforts to limit this to 1.5°C, consistent with their commitments to the Paris Agreement. 

Since July 2022, participating investors have been engaging with sovereign entities, officials and policymakers in the Australian system. 

In June 2024, the PRI published the first progress report  on the initiative’s activities to date, summarising key successes, challenges and learnings, and the positive feedback from participants. This also highlighted the outcome of an external review that found that the initiative had provided significant value to participating investors and demonstrated an effective model for collaborative sovereign engagement that could be replicated in additional markets.

As a result of these positive findings and significant signatory interest in further opportunities for collaborative sovereign engagement, the PRI has begun working on determining options for engagement programmes in further markets. Working with signatories, the PRI has developed a model to identify markets where engagement would have the greatest scope to address investor exposure to climate-related risks and opportunities and provide support to governments in meeting their commitments to the Paris Agreement.

The PRI is engaging with interested signatories to understand preferences, and any expansion to additional markets will be subject to signatory interest and sufficient resourcing.

The waiting list is open to signatories interested in joining the initiative. Signatories registered on the waiting list are offered the opportunity to express interest in joining as soon as opportunities arise. We will also reach out to these signatories directly during discussions on the expansion to additional markets.

Join the waiting list

For more information on the initiative, please contact [email protected]. 

Why is this collaborative engagement needed?

Climate change issues are a material threat and generational opportunity for investor portfolios. Through sovereign engagement, global investors seek to reduce risk associated with worsening global heating and maximise the opportunities arising from the transition to a net-zero global economy, including where related to:

• The value of sovereign debt investments;
• The continued competitiveness of national economies and investee companies; and
• Systemic risks and opportunities through exposure to the global economy.

Importantly, it is consistent with investors’ fiduciary duty to address climate-related risks and opportunities by supporting governments in meeting the commitments to the Paris Agreement objectives and ensuring a just and orderly transition to net zero. This is recognised by the growing number of investors that now explicitly factor in sovereign climate performance to their investment decisions.

Additionally, at an estimated US$60 trillion, sovereign debt accounts for a large share of global assets under management. It is essential that investors consider addressing climate risks associated with this asset class to achieve their net zero commitments.

Creating opportunities for dialogue between governments and investors enables sovereigns to articulate their approach to managing sustainability risks, investors to voice support for action, and both sides to gain a deeper and more common understanding of related risks and opportunities. This allows governments to more effectively create enabling economic environments for private finance through better informed decision-making on public expenditure, policy and regulation. In turn, such dialogue supports governments to accelerate their transition to net zero by crowding in private sector investment.

Through collaboration and co-ordination, the initiative also aims to unify and amplify the messaging of global investor sovereign engagement.

Engagement focus areas

Through mutually beneficial engagement, participating investors are supporting sovereigns to:

• Close the gap between current action and a Paris-aligned emissions reduction trajectory;
• Establish a detailed, credible and economy-wide net zero transition plan with supporting policy mechanisms, budget expenditure and investment structures;
• Build greater climate adaptation and resilience across the economy and community to avoid worsening disruption and damage from physical risks; and
• Improve disclosure of sovereign exposure to climate risks and opportunities consistent with international standards.

The Australian engagement

Upon the launch of the engagement, investors participating in the initiative identified major sovereign bond issuers as an area where collaborative engagement could add the greatest immediate impact. This is due to the significant risks that investors are faced with in this asset class, and limited existing opportunities for individual investor engagement.

As Australia has traditionally performed poorly against peer nations on climate and environmental measures in sovereign risk ratings, participating investors took the opportunity to support climate policy action at a critical juncture in Australia following the introduction of the 2022 Climate Change Act and other major reforms.

As part of this engagement, 27 international investors, collectively responsible for $9.5 trillion in assets under management, have been engaging with sovereign entities in the Australian system. Participating investors are named in the table below.

Achmea	Colchester Global Investors	Neuberger Berman
AllianceBernstein	Fidelity International	Pendal Group
Ardea Investment Management	HESTA	QIC
Aviva Investors	IFM Investors	Rest
Australian Ethical	Insight Investment	Robeco
BNP Paribas Asset Management	Jupiter Asset Management	Schroders
Brandywine Global Investment Management	LGPS Central	Sumitomo Mitsui Trust Asset Management
Brown Advisory	Morgan Stanley Investment Management	TCW
Candriam	Munich Re	T.Rowe Price

 

Positive feedback from participating investors and performance of the initiative against its objectives more broadly means engagement will continue with Australian governments, whilst the potential expansion of the initiative to further markets is assessed.

More information on the progress of the Australian engagement is available in the most recent progress report, published in June 2024.

Additional market engagements

As a result of the positive experience of the Australian engagement since its launch in 2022 and significant signatory interest in future opportunities for collaborative sovereign engagement, the PRI is currently determining options to expand the initiative to additional markets.

Working with signatories, the PRI has developed a quantitative model to provide a first-pass assessment view of the level of investor exporsure to climate-related risks and opportunities across markets. This model will provide the basis to apply a series of qualitative overlays to help determine which markets would be the most viable for future engagement and provide the greatest value to signatories.

Any future expansion of the initiative will be subject to signatory interest, and sufficient resourcing and qualified coordination support in place to sustain the engagement.

The PRI will begin discussing with interested signatories to understand preferences for further collaborative sovereign engagement opportunities. Signatories that are on the waiting list for the initiative will be directly contacted about opportunities to provide input on the initiative expansion, and the PRI will subsequently offer the opportunity for feedback to its broader signatory base through existing working groups and other spaces. Signatories can join the waiting list using this form.

The PRI expects to begin initial engagements in additional markets in the first quarter of 2025.

More information on the PRI’s model for market selection is available here.

Investor Working Group

An Investor Working Group leads the initiative’s engagement activities, made up of participating investors from across the world.

Within the Australian engagement, each investor engages through the initiative as a member of one of three thematic sub-groups focused on different parts of sovereign systems:

• National governments
• National regulators and authorities
• Sub-sovereigns

Further information can be found in the Investor Working Group Terms of Reference. The Investor Working Group is not currently open to new participants, but signatories may join the waiting list to be invited to express their interest in joining as opportunities arise in future.

Advisory Committee members

Name	Organisation
Thomas Dillon	Aviva Investors
Malika Takhtayeva	BNP Paribas Asset Management
Reina Berlien	Brandywine Global Investment Management, LLC
Akaash Sachdeva	HESTA
Peter van der Werf	Robeco
Richard Proudlove (Observer)	IGCC