In recognition of the urgent and systemic risks that climate change poses to both society and the financial markets, Domini has adopted the below Investment Policy Statement on Climate Change, along with an implementation framework. As highlighted by the Intergovernmental Panel on Climate Change, the pace and scale of climate action remain insufficient, and every increment of warming brings more widespread and pronounced extremes. For investors, climate-related risks are material to both short- and long-term value creation and preservation, impacting portfolios across time horizons, geographic markets, and sectors.
By proactively managing these risks, Domini aims to align its investment strategies with the scientific consensus to limit global temperature rise to 1.5°C and achieve net zero emissions by 2050. This approach not only safeguards portfolio value but also contributes to broader efforts to mitigate real-world greenhouse gas emissions. The policy reflects Domini’s commitment to holistic risk management, integrating system-level perspectives, intersectionality, and business-model transformation to address the root causes of the climate crisis and support long-term sustainable value for investors.
In its Sixth Assessment Report, the Intergovernmental Panel on Climate Change (IPCC) found that the pace and scale of climate action had thus far been insufficient to tackle climate change and warned that, “With every increment of global warming, regional changes in mean climate and extremes become more widespread and pronounced.” However, it also provided some hope: “Deep, rapid, and sustained reductions in greenhouse gas emissions would lead to a discernible slowdown in global warming within around two decades, and also to discernible changes in atmospheric composition within a few years.”1
At both the portfolio and system levels, management of these climate-related risks is highly relevant and material for short- and long-term value creation and preservation. Due to its systemic nature, climate change impacts investments across multiple time horizons, geographic markets, and sectors and industries. However, as investors and as part of the broader financial community, we believe we can meaningfully mitigate climate-related risks at both the portfolio and system levels.
Our Portfolio Companies and Net Zero Goals
A broad-based, well-established scientific consensus exists that our society must limit global temperature rise within 1.5°C above pre-industrial levels by around mid-century to avoid catastrophic consequences. In 2018, the IPCC found that, to limit global warming to 1.5°C, the world would need to halve CO2 emissions by around 2030 and reach net zero CO2 emissions by mid-century.2
As a part of our efforts to manage climate change as a system-level risk, we support a broad range of efforts to align our society with a 1.5°C scenario. Therefore, we seek to align our portfolio-level emissions with a 1.5°C world by reaching net zero by 2050, while also contributing to the reduction of real-world greenhouse gas (GHG) emissions.
Beyond GHG Emissions Reductions
Climate-Related Physical Risks
Climate change also has implications for our portfolio companies, including their physical assets and the surrounding environment that they depend upon. While climate change is often framed in two separate parts—transition risks and physical risks—we acknowledge that these two risks interact with each other and also intersect with other environmental and social systems.
Therefore, evaluating the full scope of climate-related risks and opportunities for companies in our portfolios involves our assessment of these factors, as well as the reduction of greenhouse gas (GHG) emissions.
System-Level Challenges
Informed by the best available science on climate change, we acknowledge the criticality and urgency of taking actions on climate change. As investors, we understand that climate change is a system-level issue that not only has material impact on our portfolio companies but also affects and intersects with other environmental systems and subsystems, such as the ocean, forests, precipitation, and biodiversity, as well as with socioeconomic systems, such as health care and our financial system itself.
We therefore acknowledge the intersection between ecosystems and socioeconomic systems and how the context of climate change exacerbates various social and environmental challenges we face today and will continue to face in the future.
The management of system-level challenges like climate change has emerged as a central component of our duty to manage risk, due to the overarching impacts on the global ecosystem, society, and therefore on our portfolio companies. Ultimately, we must seek to mitigate and address these system-level risks.
Overall Strategies
As we adopt holistic approaches to assess and address climate-related risks and opportunities, we incorporate and emphasize the three following high-level approaches, which we believe help us make investment decisions that can create long-term value. Our task is to embed these high-level considerations into our investment processes, while also addressing the root causes of the climate crisis. These frameworks inform and guide our investment research, engagement, and public advocacy priorities.
System-Level Perspective
A system-level perspective can enable a holistic view that allows us to make better-informed investment decisions by understanding complex challenges and how they affect our portfolio companies. A system lens also helps enhance our ability to assess risks by considering structural causes of specific challenges, rather than narrowly focusing on symptoms of these challenges. Furthermore, addressing and mitigating system-level risks can have material impact on our investments across time horizons, sectors, industries, and markets.
Intersectionality
Intersectionality allows a nuanced understanding of complex issues, uncovering hidden risks and opportunities that might otherwise be overlooked. This is critical to understanding the relationships between systems, issues, industries and how individual issuers interact with each other.
Business-Model Transformation
Addressing climate-related risks requires companies across industries to transform the conduct of their core business operations. We seek to identify industry-specific, climate-aligned business models, as well as best practices and specific pathways to such transformations. Such business models both create and extract value, with a balance that varies depending on the industry, challenge, and context, as well as on the specific time horizon.
- IPCC, 2023: Climate Change 2023: Synthesis Report. Contribution of Working Groups I, II and III to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change [Core Writing Team, H. Lee and J. Romero (eds.)]. IPCC, Geneva, Switzerland, 184 pp., doi: 10.59327/IPCC/AR6-9789291691647.
- IPCC, 2018: Global Warming of 1.5°C.An IPCC Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty [Masson-Delmotte, V., P. Zhai, H.-O. Pörtner, D. Roberts, J. Skea, P.R. Shukla, A. Pirani, W. Moufouma-Okia, C. Péan, R. Pidcock, S. Connors, J.B.R. Matthews, Y. Chen, X. Zhou, M.I. Gomis, E. Lonnoy, T. Maycock, M. Tignor, and T. Waterfield (eds.)]. Cambridge University Press, Cambridge, UK and New York, NY, USA, 616 pp. https://doi.org/ 10.1017/9781009157940.