Legal & General adopts Baringa’s Climate Change Scenario Model for financial services

Climate change

Legal & General, one of the world’s largest asset managers, adopted Baringa’s Climate Change Scenario Model for the financial services industry and is using the model to develop a Task Force on Climate Related Financial Disclosures report (TCFD). 

Baringa’s Climate Change Scenario Model provides the data and insight for firms to be able to understand the financial risks and opportunities from climate change that will impact on the assets they own, as well as the climate temperature impact of the assets and investments they hold. This will enable firms to manage their risk, and to make decisions that benefit their own shareholders as well as the planet. It is built on Baringa’s 20 years of experience in advising governments, energy and financial services clients on the energy transition and climate change, as well as Baringa’s partnership with XDI’s leading global climate physical risk solution.

The financial services industry has a crucial role to play in mitigating climate change. Over USD300 trillion of infrastructure investment is required by 2050 – representing a huge responsibility, as well as a commercial opportunity. Climate change brings tremendous risk to financial services firms – with potential tipping points in the value of assets held by financial institutions across a wide range of sectors. 
Colin Preston, Baringa’s Financial Services Sector and Climate Change lead, says: “Most financial institutions are currently not able to evidence the climate impact of their investments, or the climate-related risks of the assets that they hold. They are also unable to demonstrate to their investors that their values align. Regulators are starting to force firms to act – with The Bank of England leading the way. However, we are now seeing a huge level of engagement across the industry at C-suite level, and more and more decisive action being taken – across strategy, risk, investment management and ESG functions.
“It has been hugely rewarding to work with L&G, who have used our Climate Change Scenario Model to develop the climate risk management framework which underpins their TCFD report released today. L&G’s commitment to sustainable investment is widely recognised, and they are highly attuned to the need to demonstrate to investors and clients the impact of their investments on global climate. Our model’s insight gives them an advantage in effective decision making and the development of products for an audience that is increasingly concerned about the effect their money and investments can have on the climate.”
Oliver Rix, Baringa’s Head of Climate Change, Energy & Environment, adds: “Our global model builds on Baringa’s 20 years of experience helping governments and policy makers assess transition pathways, companies develop decarbonisation strategies, and investors evaluate energy markets and assets. Our partnership with XDI then brings in the global leading physical risk solution. Our integrated model is enabling financial services firms to bring climate risk metrics, financed emissions, and temperature alignment into their core strategic and operational decision-making.”
Baringa’s model is unique in being a fully integrated transition and physical risk model that is:

• Configurable – from scenario construction through to incorporating assessments of individual company-level transition and adaptation strategies, allowing companies to run multiple bespoke scenarios

• ‘Zoomable’ – from viewing climate impacts at portfolio summary level, through to company level, through to individual physical asset level

• Comprehensive - covering all key sectors, asset classes, including equities, bonds, loans, and direct property holdings.
Martin Brookes, Director of Investment Strategy at Legal & General, says: “We are excited to have worked in partnership with Baringa, one of the leading global energy consultancies, to extend their Climate Change Scenario Model to build one of the market-leading climate change risk management frameworks available today.”
Rohan Hamden, CEO of XDI, says: “The Climate Change Scenario Model that we have developed in partnership with Baringa, integrating our 12 years of climate physical risk experience, means the financial services industry, as well as other sectors, can substantially increase its expectations of climate risk analysis. We at XDI hope the new model will allow a more objective understanding of risk, and that it will make it clear that independent climate analysis -- not just self-disclosure -- is now possible. Investors like LGIM can now undertake climate change risk analysis across every single one of a target company's physical assets."