Understanding the IPR Framework: A Comprehensive Review of Key Elements and Implications for Investors

Investors have a new tool at their disposal to navigate the complex landscape of climate-related policy risks. The Inevitable Policy Response (IPR) framework provides a comprehensive analysis of how geo-political, institutional, and technological drivers are accelerating the transition to a greener economy and how this impacts asset valuation results.

The IPR framework links key components to provide investors with a high-level overview of asset class results and portfolio construction challenges. By understanding the disruptive acceleration of the transition, investors can identify opportunities to tilt their portfolios towards greener options, especially in green infrastructure.

One of the key takeaways from the analysis is the large spread between stock-market winners and losers as a result of climate policy responses. Companies in sectors such as energy, automobiles, utilities, minerals, and agriculture face significant disruptions, with some potentially losing up to 43% of their current value while others could gain up to 33%.

The IPR framework also highlights the importance of conducting company-level analysis to identify which companies have credible transition strategies and are likely to successfully implement them. This deeper analysis is crucial for investors looking to integrate transition risk into their investment selections and engagement strategies.

Overall, the IPR framework provides investors with a valuable tool to assess the resilience of their portfolios against climate policy risks and to take action accordingly. By incorporating sector-level analysis and engaging with companies and policymakers, investors can better position themselves for the inevitable transition to a greener economy.

To support investors in this process, the PRI will be running a program to provide guidance on how to incorporate the IPR framework into investment processes and engage with companies and policymakers. Investors are encouraged to act now to address climate policy risks and ensure the alignment of their portfolios with the goals of the Paris Agreement.