Impact case study database

The LSE-led research outlined above has supported better-informed policy design and decision-making in local growth. It has encouraged reduced reliance on anecdotal and case study-based evidence alone, and facilitated policymakers’ greater use, instead, of quantitative data and the findings of econometric analysis and impact evaluations. This has had direct impacts on specific policies and wider influence on the selection and implementation of evaluation and appraisal methodologies guiding public expenditure decisions. These impacts have resulted primarily from the use of the work to: a) improve appraisal and evaluation methodologies supporting more efficient public investment; and b) support better decisions on feasible and proportionate appraisal and evaluation processes. Effects have been felt at supra-national, national, and local levels. Illustrative examples of impacts at each of these levels are provided below, though the effects of the work - particularly at local level - have been much more widespread and diverse than can be captured here.

Supranational impacts

The impact evaluation of the UK Regional Selective Assistance Scheme co-authored by Overman [4] directly influenced changes made by the European Commission Directorate-General for Competition (DG COMP) to regional aid eligibility rules on state aid to large firms [A]. Eligibility rules are structured around a set of ex-ante presumptions on allowable aid - the General Block Exemption Regulations (GBER) - and ex-post evaluation requirements. The impact evaluation [4] (which was first published in 2011) showed that regional subsidies have less of an incentive effect on large firms and that awarding such aid to large enterprises is ineffective and costly. It is cited in a 2014 explanatory note published by the European Commission as key supporting evidence justifying a shift toward promotion of regional investment aid for SMEs. Citing [4], the paper states:

“There is a strong body of evidence suggesting that regional investment aid is more effective and efficient when geared towards SMEs (i.e. it changes the behaviour of the aid beneficiary to undertake an investment that contributes to a common objective).” [B]

This shift was achieved by allowing the GBER on large firms to apply only to “initial investment in favour of new economic activities” [C].

It is not possible to accurately estimate the shift in expenditure to SMEs that has resulted from this new guidance, but the potential redirection of funds is at a large scale. EU Member States’ state aid expenditure is increasing year-on-year; EUR121 billion (representing 0.76% of GDP) was allocated in 2018. The study [4] and advice from the What Works Centre for Local Economic Growth (WWG) have helped inform guidance on ex-post evaluation of both current and future state aid in the EU (see, for example, [ **D]**), as well as UK guidance on the evaluation of structural funds [E].

National impacts

On a national level, research by Gibbons has informed the cost-benefit analysis (CBA) methodology used by the UK Department for Transport (DfT) and Transport Scotland. Specifically, insights published in [6] have input directly to the methods used by transport planners to account for the potential wider economic impacts (WEIs) of transport projects, in ways that support more accurate appraisal. The research published in [2] was developed in close collaboration with DfT specifically for this purpose, and this and other relevant outputs continue to inform future directions in transport appraisal methodology.

This direct impact is manifested most clearly in DfT’s Transport Analysis Guidance (TAG) [F], and in Transport Scotland’s Scottish Transport Appraisal Guidance (STAG) [G]. These cite [6] as providing the key parameters used to translate planned transport improvements into quantifiable productivity benefits. By informing specific aspects of the appraisal methods, [6] contributes to decisions about all publicly-funded transport projects in the UK that meet the threshold for TAG appraisal as part of central government approval. This represents hundreds of billions of pounds’ worth of public investment: the 2018 National Infrastructure and Construction Pipeline alone set out more than GBP400 billion of planned investment. Research by Gibbons and Overman [3] [4] is also informing the development of new approaches to the ex-post evaluation of transport investments [H].

In addition, the LSE research has influenced UK Government advice on evaluation more generally. Impacts here are underpinned particularly by Gibbons and Overman’s reviews of prior evaluations, including that produced for the National Audit Office (published in **[7]**), which made explicit recommendations to government about ways to improve its impact evaluation. As Director of WWG, Overman has overseen a suite of outputs and services that build on the work of early reports such as [7] and focus on improving evaluation methods for a wide range of policies. WWG has, for example, been signposted in guidance from the UK Government to support the creation of Local Industrial Strategies [I].

Local impacts

At local level, WWG has had a significant impact on the evaluation methods and activities of local authorities, including those relating to devolution deals associated with billions of pounds of spending. WWG work with Liverpool City Region Combined Authority (CA) provides an illustrative example.

Impacts in Liverpool include a decision taken by the CA in 2018 not to conduct a complex meta-evaluation of their devolution deal. This decision was taken following a discussion with the WWG, whose work suggested that pursuing the meta-evaluation would yield little insight at high cost [J]. The WWG instead suggested that the CA should identify aspects of the devolution deal for which in-depth evaluation would be a cost-effective and productive endeavour. The principle of focusing evaluation efforts and using counterfactuals (central to WWG evaluation methodology) was informed by meetings between Overman and lead officers from the CA in November 2016. This focus on “meaningful” evaluation has informed interventions, fund allocation, and scheme prioritisation across the CA. The CA continues to draw on the work of the WWG, for example in its Strategic Investment Fund Assurance Framework, which governs the management of devolved, regional, and national funding sources. Here, WWG is cited as a source for best practice on evidence-based approaches to policy and investment [K].

The close involvement of WWG in informing Liverpool CA’s evaluation methodology is not an isolated case. The approach advocated by the UK Government for devolution areas draws directly on the counterfactual principle proposed by Overman at WWG. This is demonstrated in a September 2017 Memo from the Head of Paid Service (who has overall responsibility for the management of the CA). The Memo corroborates the application of WWG advice by central government. It notes the importance of “conducting in-depth evaluation of a small number of initiatives, rather than complex and costly programme-wide evaluations, which can be meaningless in practice”. This approach: “ builds on ‘counterfactual’ principles advocated by Professor Henry Overman from the ‘What Works Centre for Local Economic Growth’ at the LSE” [L]. The Memo further notes that this advice is being “impressed upon” all devolution areas [L].

The body of work outlined above has had wide-ranging impacts on the global climate change debate and on the adoption and implementation of the Paris Agreement - the crucial global umbrella agreement for international climate action. Four particularly prominent areas of impact are described here.

Reframing the global narrative around sustainable growth

GRI research (e.g. **[1]**) has substantiated the “sustainable growth” narrative and documented economic opportunities arising from climate action. Professor Nick Stern has used his global leadership roles to communicate this powerful message to maximum effect, for example through the Global Commission on the Economy and Climate. Co-chaired by Stern, the Commission’s first report, Better Growth, Better Climate, was launched at the United Nations (UN) in New York in September 2014, at an event attended by world leaders and by the UN Secretary-General. The report underscored the message of urgency and low-carbon growth promoted by GRI and highlighted additional benefits of action on climate change, as set out in [1].

The evidence base this provides has been instrumental in shifting global understanding of climate action among policymakers in ways that support proactive climate action. It helped set the tone of international discussion ahead of the 2015 UN Climate Change Conference in Paris. According to Christina Figueres, Executive Secretary of the UN Framework Convention on Climate Change at the time of the Paris Agreement:

“[GRI’s] consistently compelling analyses of the economics of climate change have shifted the debate on decarbonisation from burden to opportunity and growth. It is this new understanding that will allow us to effectively address climate change.” [A, p. 3 ].

Stern’s influence on the discussion is further underlined by his inclusion on a list of the 99 global leaders who created the Paris Agreement on the official " Profiles of Paris” website.

The low-carbon growth narrative supported by GRI research is now ubiquitous in high-level policy organisations such as the Organisation for Economic Cooperation and Development (OECD), the World Bank, and the European Commission, many of which use GRI research. Angel Gurria, Secretary-General of the OECD states:

“[GRI] has made a great contribution…to shaping the global debate on climate change and the protection of the environment. The OECD is proud of our fruitful collaboration, which extends not only to research and analysis, but also to advocacy. The Institute has been an indispensable partner in our efforts to disseminate the work of the OECD in this area and communicate the policies needed to leave a better planet to future generations.” [A, p. 4 ]

Impacts on climate policy and legislation around the world

GRI research on national climate policy (e.g. **[3]**), supported by the unique CCLW database, offers powerful tools for legislators and policy stakeholders to learn from international experiences on how to meet the Paris objectives. According to Mary Robinson, President of the Mary Robinson Foundation - Climate Action, the CCLW database has been:

“invaluable to my Foundation in assisting countries to respond to recommendations on climate change as part of the Universal Periodic Review of the Human Rights Council.” [A, p. 3 ]

In his intervention at the Paris summit, then-UK Prime Minister David Cameron quoted GRI’s climate legislation statistics to remind parties that they were already acting on climate change [B]. This reference was intended to underscore the fact that a global agreement based on individual country contributions was entirely possible.

GRI research on international experiences in climate policy formulation (such as **[3]**) is also used by the Inter-Parliamentary Union (IPU), the official UN organisation for parliamentarians. IPU has routinely disseminated co-branded annual updates on climate change legislation to its member parliaments (see **[C]**) and Alina Averchenkova is involved regularly in their events. As Martin Chungong, Secretary-General of the IPU explains:

“These publications constitute a significant knowledge capital for parliaments: they are an important resource that MPs can consult at any time during their legislative work. Parliamentarians are a crucial element of any successful strategy for tackling climate change and are duty-bound to enact and amend laws, approve national budgets and hold governments to account.” [A, p. 9 ]

Averchenkova and the GRI team have provided expert advice to national parliaments and high-level decision-makers in more than 10 countries. One example of the impacts of this comes from New Zealand, where officials drew heavily on GRI research in developing a new, Paris-aligned “net zero” carbon law, which was passed in November 2019. GRI input to the development of this law was supported via regular exchanges (e.g. to review draft reports) between Averchenkova and Professor Sam Fankhauser at the LSE, and the New Zealand Ministry for Climate Change, the Parliamentary Environment Committee, the independent Productivity Commission, and the influential Parliamentary Commissioner for the Environment. The New Zealand law very closely reflects GRI thinking (as expressed, for example, in **[3]**) on issues such as target-setting and the role of independent advisory bodies [D].

Averchenkova is now advising on the development of a Paris-aligned EU-level climate law, a draft of which was published in March 2020. GRI research has been used since 2017 to support a concerted campaign (led by the European Climate Foundation) advocating for such a law. GRI research and expertise - building on [3] - was particularly used to establish the law’s merits and identify the features it should include. This helped decision-makers in the European Commission and key member states - including Belgium, Denmark, Germany, Ireland, Netherlands, Portugal, and Spain - to draft the new law [E].

Promoting climate finance and sustainable infrastructure

GRI research (e.g. [4] and **[5]**) has highlighted the crucial importance of getting long-term infrastructure investments right, since these lock in emissions and vulnerability profiles. In developing countries, where the provision of climate finance is most critical, infrastructure is often financed by multilateral development banks (MDBs). The influence of GRI thinking is evident in references to its research in new guidance on finance for sustainable infrastructure by organisations such as the Asian Infrastructure Investment Bank (AIIB), Inter-American Development Bank (IADB), and New Development Bank (NDB) [F]. The latter alone (which is advised by Stern) has invested nearly USD16 billion in sustainable infrastructure and related projects since 2016. The IADB is implementing the UK Sustainable Infrastructure Programme (SIP), which will accelerate sustainable infrastructure development in Latin American and the Caribbean and catalyse private sector investment for the implementation of the Paris Agreement. The Department for Business Energy and Industrial Strategy (BEIS) cited [4] in the SIP business case [G].

Informing the UK’s response to climate change

GRI research has also influenced climate policy in the UK, including in terms of climate ambition and approach to climate resilience. The UK addresses mitigation through five-year “carbon budgets” (which impose a statutory cap on greenhouse gas emissions) and adaptation via five-yearly risk assessments and national adaptation programmes. GRI research (e.g. [5] and **[7]**) has informed both these processes. The principal mechanisms for this impact have been Fankhauser’s membership (2008-16) of the Committee on Climate Change (CCC; the UK Government’s statutory advisor on climate change) and Stern’s high-level connections as a former Second Permanent Secretary to the Treasury. More broadly, GRI engages regularly with officials in relevant departments - chiefly HM Treasury, BEIS, and the Department for Environment, Food and Rural Affairs - including via responses to parliamentary enquiries.

Through these channels, GRI research has had a tangible impact on UK climate policy before and after Paris. On mitigation, the work has helped to shape: (i) the UK’s statutory carbon targets for 2008-32 (the first five carbon budgets); and (ii) the 2019 adoption of a “net zero” emissions target. Research including [3] and [6] was influential in locating UK action in the international context and assuaging concerns about its effect on competitiveness. The GRI’s influence on the work of the CCC is attested by its Chair, Rt Hon. John Gummer, Lord Deben, who says of the GRI:

“The quality of its work and its intellectual capacity has helped our thinking in some of the most complex areas that we cover. Its name has always been a guarantee of rigour and objectivity.” [A, p. 14 ]

GRI work has also helped define the UK’s methodological approach to adaptation planning and climate change risk assessment [H]. The analytical method used in the 2017 Climate Change Risk Assessment (CCRA2), a key statutory planning document, directly reflects GRI research findings on identifying adaptation priorities ( **[6]**) and the importance of the private sector to climate resilience ( **[7]**). The method is now carried over into CCRA3. Fankhauser and Surminski were directly involved in the planning and execution of CCRA2 and CCRA3. The risk assessments, as shaped by GRI work, will determine the government’s approach to adaptation planning in the UK over the next five years.

Insights from the research outlined here have stimulated wide-ranging policy debates amongst both practitioners and policymakers. Aspects of the work have also directly informed specific changes to housing policies in the UK and internationally.

Informing UK housing and planning policy

Catalysing and informing public policy campaigns: UK impacts have been achieved, in part, through meetings with ministers and presentations of the research, including at: the Prime Minister’s Implementation Unit; the Department for Communities and Local Government (now the Ministry of Housing, Communities & Local Government (MHCLG)); Her Majesty’s Treasury (HMT); the National Audit Office; and the Bank of England, as well as for government economists. Cheshire and Hilber have also submitted expert evidence to various Parliamentary Select Committees. They have further maximised engagement with their work by publishing on blogs for non-academic audiences. In a 2014 SERC blog post, “ Building on Greenbelt land: so where?”, Cheshire set out proposals to permit development on Green Belt land near to stations, giving access to London Zone 1 within 45 minutes. The post catalysed the “ London’s Non-Green Belt” campaign, started by Labour MP Siobhain McDonagh in May 2018 with support from the Centre for Cities and others. This generated substantial national media coverage, (re-)igniting public debate about the use of Green Belt land [A]. The proposal to build on such land close to stations was included in the original (2017) draft Housing White Paper. While deleted from the final version, it remains in the policy debate.

Work on the UK Stamp Duty Land Tax (SDLT) published in [7] has also had a significant impact on public and policy debate, and has ultimately led to a reduction in the taxes paid by first-time buyers. Hilber reported the findings of [7] in testimony to an HMT Select Committee in an Inquiry for the 2016 Budget [B]; he also cited it in written evidence to that committee. He reiterated the case for reform in evidence to the House of Lords (HoL) Select Committee on Intergenerational Fairness and Provision (6 November 2018). [7] was subsequently widely referenced as key evidence in favour of reform in a media campaign calling for changes to SDLT following the 2017 Autumn Budget. On 9 August 2017, for example, the top story on the front page of The Telegraph cited [7] as central evidence for its claim “ Stamp duty killing house sales” [C]. The Budget that followed on 22 November 2017 announced that relief from SDLT would be granted to first-time buyers paying up to GBP500,000 in England, Wales, and Northern Ireland. The media campaign citing [7] played a vital role in securing the removal of SDLT for first-time buyers.

Increasing mortgage lending and delivering savings to first-time buyers: in 2018, following the announcement of the SDLT reform, the UK recorded its highest number of first-time buyers (FTBs) in 12 years, with mortgage providers advancing GBP62 billion to enable 370,000 newcomer mortgages to complete. The level of lending in 2018 was 4.9% higher than 2017, implying 18,130 additional FTBs [D]. It is not clear to what extent this increase is attributable to the SDLT reform as opposed, for example, to access to Help to Buy or to wider, macroeconomic factors. However, it seems reasonable to assume that the stamp duty relief contributed to this significant uptick in FTB mortgages. The change in stamp duty offers those FTBs important savings, up to a maximum reform-induced saving of GBP5,000. So, for the 370,000 FTBs recorded in 2018, it might have generated up to GBP1.85 billion in total savings. Given that most buyers outside London will save much less than GBP5,000, and the tax relief may be capitalised into higher prices (partially) offsetting the savings, a more realistic estimate might be an average saving of GBP2,500 per FTB. This would still deliver total FTB savings of GBP925 million in 2018.

Improving assessment of housing and economic needs in the UK: ideas published by Cheshire in another SERC blog post, “ Land Prices: the dog that’s lost its bark” (December 2013), were instrumental in ensuring the reinstatement of the UK’s series on land prices. Estimates of land prices, which are vital if price signals are to be used efficiently to inform planning land allocations, had previously been published by the Valuations Office Agency but were discontinued in 2010. The blog post was accompanied by a letter drafted by Cheshire to the then-Chancellor and Secretary of State of the DCLG, calling for the series to be re-instated. They duly were re-instated as “information” from 2014/15 [E]. The introduction of price signals into decision-making about land allocations, originally suggested in [2], was also discussed by the HoL Select Committee, which concluded that the government should investigate it. The revised National Planning Policy Framework (2019) guidance includes an explicit recommendation to use price signals to inform land allocations in the planning process [F]. An August 2020 White Paper, Planning for the Future, likewise recommended using price signals in land allocations [F]. The same paper echoes Cheshire and Hilber’s recommendations to move to a “rules-based” planning system and replace negotiated developer contributions of “affordable housing” with a levy on the value of new housing.

Cheshire’s contributions to UK housing and planning were acknowledged by his receipt of a CBE in the 2017 New Year’s Honours list for services to economics and housing.

Reform of the USA Mortgage Interest Deduction (MID): the research published in [8] suggested that the MID (like the MICD, see below) is an expensive policy that does not always achieve its goal of increasing homeownership. In 2017, the USA passed the Tax Cuts and Jobs Act. This dramatically reduced the cost of the MID from USD60 billion in 2017 to USD25 billion in 2018. The motivation for this reform was “empirical evidence [that] indicates there is no significant positive effect of the MID on homeownership rates”; [8] is cited as a central piece of the supporting evidence for this [G]. A working paper version of [8] was also prominently quoted during the political debate that led to the reform, in hearings before the US Senate Committee on Finance and the US Senate Budget Committee.

Reform of the Mortgage Interest & Capital Deduction (MICD) in Flanders and Brussels: in 2014, the Belgian Government transferred the MICD from the federal to the regional level, allowing regions to reform it differently. In 2015, the region of Flanders all but abolished its MICD, using [8] as a blueprint: the paper was used extensively in a report commissioned by the Flemish Government to investigate the effectiveness of the MICD and suggest reforms [H]. One of the authors of that report confirms that: “ Hilber’s work provided evidence…which was of vital importance for the policy reforms” [J].

A subsequent independent review of the economic impact of the reform showed that, consistent with predictions in [8], the reduction of the MICD significantly lowered house prices and led to an increase in homeownership attainment [I]. According to the Flemish Government, the reform directly affected some 1.5 million people, a significant share of the region’s taxpayers. Not only have homeowning taxpayers seen their subsidies fade out, the wider populace has also benefitted from increased tax revenue supporting better public services (or lower public debt). By making housing more affordable, the reform has delivered particular benefits for younger buyers. The Federal Government estimated the total MICD subsidy for the whole of Belgium prior to the reforms in the three regions was approximately EUR1.8 billion [J].

In 2017, the Brussels-Capital region passed an even more far-reaching reform, completely eliminating the MICD for new mortgages. In so doing, the regional government was advised by academics from the Katholieke Universiteit Leuven. The consultation report commissioned from them by the Fiscal Authority of Brussels again refers prominently to [8] in justifying the reform [K, Section 1.2.1 ].

Supporting the development of Ontario’s Housing Supply Action Plan: in October 2017, Cheshire and Hilber were contacted by a former student, then working as Associate Director of Research at Canadian think tank, The C. D. Howe Institute. He asked them to comment on a draft report (subsequently published by the Institute in May 2018) which drew extensively on insights from [1], [3], [4], and [6] (see [L] and **[M]**). In particular, the Ontario-specific methodology followed the theoretical and empirical framework described in [3] [L, p.12, n.16 ].

The report provided a basis for new legislation passed by the Ontario Government in June 2019 to tackle the state’s housing crisis. The Ontario Housing Supply Action Plan was the most ambitious set of policies ever passed by a government in Canada to promote the supply of housing. Its development was led by Cheshire and Hilber’s former student in a new role as Director of Policy, Budget and Fiscal Planning for the Ontario Premier. Research published in [1], [3], [4], and [6] guided his diagnosis of the underlying causes of the housing crisis, including calculating the regulatory burden on housing prices in Toronto. It was also instrumental in designing new policies to increase housing supply [M]. A key aim of the new legislation is to stimulate the faster construction of new housing near transit. The reform’s primary focus is on simplifying planning procedures, creating more incentives to build and allowing homeowners to create residential units above garages, in basements, and in laneways. Another focus of the reform is on development charges. The main aim is to better align costs and benefits of development and reduce uncertainty in the development process.

The C. D. Howe Institute is now hoping to provide evidence for the British Columbia Government to devise and implement similar reforms aimed at increasing the supply of housing in Vancouver, where regulatory costs are even higher [M].

Climate change is one of the defining global risks of the 21^st century. To avoid its worst impacts, the global economy needs to make the transition from fossil fuels to renewable energy, from energy-intensive modes of production to energy-efficient ones, and from extensive use of land and unsustainable practices in agriculture to a food system with a smaller carbon footprint. TPI, which is available free-of-charge to investors, provides a powerful new tool supporting this transition.

Improving the quality and availability of investor data

An “orderly transition” (to quote former Governor of the Bank of England, Mark Carney) requires investors to be empowered with information about the climate change positioning of companies they are or may be investing in. TPI aims to achieve this by providing independent, open-access data showing whether or not the world’s largest high-emitting companies are adapting their strategies to align with international climate goals. Whether they come from an ethical or risk-management perspective, its investor supporters use TPI because they have identified the need for an academically robust yet simple and practical tool to inform their investment decisions, shareholder engagement and voting, and to track company progress over time. Although many environmental/social/governance (ESG) data providers and products are available, TPI is distinctive in being open-access, easy to use, and based directly on peer-reviewed academic research. Its advantages were recognised in June 2020 when TPI was named ESG Assessment Tool of the Year at the Sustainable Investment Awards, hosted by Environmental Finance [A].

Changing capital allocation and company behaviour

TPI’s investor supporters now number 87 asset owners and managers with a collective USD23 trillion of assets under management/advice. The very large scale of their combined assets means the investors supporting TPI have the potential to materially affect the allocation of capital between clean and dirty assets, as well as to change the behaviour of the companies they are investing in. Illustrative use case examples are provided here of some of the ways in which TPI is changing capital allocation and company behaviour across a range of sectors. These examples illustrate specific types of impact in specific companies using TPI. The sorts of impacts outlined here are felt at a very significant scale through the much wider use of the tool.

Informing investment decisions

The Länsförsäkringar Alliance is unique in the Swedish banking and insurance market. Its 23 customer-owned regional insurance companies cooperate to offer customised insurance solutions to their combined 3.9 million customers. Asset-owner subsidiaries of the Alliance have combined assets under management of USD32 billion. Länsförsäkringar is an active signatory of the UN-supported Principles of Responsible Investment (PRI) and has a comprehensive screening policy based on global standards including the UN Global Compact, Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises, and UN Guiding Principles on Business and Human Rights. This screening policy excludes its investment in controversial sectors such as weapons, tobacco, and online gambling. Climate-related exclusions screen out selected mining and fossil fuel energy companies which derive more than 5% of revenue from thermal coal or oil sands.

Länsförsäkringar began using TPI data in its investment activity in 2019, particularly to inform its definition of “companies in transition”. This is important because companies deemed to be “in transition” are exempted from these climate-related exclusion policies. A company defined by Länsförsäkringar as “in transition” effectively has a second chance to receive or retain their investment provided their business model is not based on the extraction of fossil fuels. The Responsible Investment team at Länsförsäkringar explains: “ We want to encourage energy producers and utility companies that have started to move away from fossil fuels, and made a commitment to transition” [B, p. 11 ]. TPI assessment tools help Länsförsäkringar decide which companies really have made this commitment and are therefore exempted from its investment exclusions policy:

“We strive towards implementing more sophisticated exclusion policies and we realised that a static exclusion list based on current performance failed to distinguish between companies which are on a journey towards better climate performance and those which are not. Using TPI data allows us to support those companies which are on this journey.” [B, p. 11 ]

Helping investors understand and push for improvements in company behaviour

TPI data is used by the Universities Superannuation Scheme (USS), one of the largest occupational pension schemes in the UK, with some GBP68 billion in assets under management. The scheme is mandated to integrate ESG considerations such as climate risk into their investment processes and to apply them across all asset classes. In 2019, the USS UK Voting Policy was updated to integrate TPI data into voting decisions. This means that the TPI Management Quality scores are now used by the USS to benchmark the quality of climate governance for investee companies across the world. According to the USS’ Head of Responsible Investment, TPI research helps them to identify those companies that are lagging in their management of the climate transition, and to encourage them to improve:

“We encourage portfolio companies with weak performance to enhance their corporate disclosure by responding to TPI’s information requests. And from this year (2020) we have started to vote against or abstain on the resolution to receive the report and accounts where companies have the poorest management quality score, as assessed by the TPI. We also plan to ratchet this up in following years.” [B, p. 13 ]

TPI data therefore helps USS both to understand and push for improvements in its investees’ performance. In turn, this also helps USS to manage the risk that low-performing investees present and thereby to potentially improve financial returns for its members.

TPI is also an official data-provider to the Climate Action 100+ Initiative, launched in December 2017 at the One Planet Summit and targeting the highest emitting companies globally. Signed by more than 450 investors with more than USD39 trillion in assets under management, the Initiative has targeted 160 of the world’s highest-emitting corporations to improve their management of climate change and reduce their carbon footprint. Climate Action 100+ uses TPI data to monitor the progress of the corporations it targets, to engage those corporations on specific management practices and actions they are not taking but should be taking, and to measure whether the initiative itself is making a difference. The first Climate Action 100+ progress report, informed by TPI research, was published in late 2019. It found that 9% of the 161 target companies now have Paris-aligned targets [A].

Informing shareholder voting

TPI data, including the Carbon Performance Indicator and Management Quality Scores, have been used by major shareholders to inform the way they vote on company policies. This has, for example, helped to drive down emissions in the auto industry via the use of TPI by international asset management firm, Robeco. Robeco manages assets of EUR146 billion, with EUR131 billion in ESG-integrated assets. They use TPI data to inform extensive engagement on climate change with the companies of which they are shareholders. In 2019, analysts in Robeco’s Active Ownership team voted at a record 5,926 shareholders meetings and had 229 companies under engagement. Robeco has particularly contributed to the development of the engagement strategy with European automakers under the Institutional Investors Group on Climate Change and Climate Action 100+. TPI data is critical in these engagements. Robeco’s Engagement Specialist explains:

“With so much conflicting information out there, one of the benefits of using TPI assessments is the consistency of data. By tracking the same indicators each year, using the same scenario assumptions, we can see real change over time - or identify where it’s not happening.” [B, p. 5 ]

Robeco’s engagements, in collaboration with other investors under the Climate Action 100+ initiative, have already yielded positive results, with two European carmakers setting time-bound net-zero emissions targets. Robeco is also beginning to use TPI Management Quality scores in its voting policy and in 2020 will begin voting against certain board proposals at companies with a low Management Quality score [B, p. 5 ].

Supporting the development of more new tools to drive the low-carbon transition As well as being an important resource in its own right, TPI is also being used to support the development of additional tools promoting the “orderly transition” to a low-carbon economy. The Church of England Pensions Board, working with FTSE Russell, has used TPI data in its development of a new climate investment index intended to actively drive change. This, the FTSE TPI Climate Transition Index, was launched in January 2020 with an allocation of GBP600 million from the Church of England (CoE) Pensions Board, which manages approximately USD3.7 billion of assets. TPI data is used to make this the first global index to embed forward-looking carbon performance [B, p. 15 ].

The index investment fund is designed specifically to reward those companies with public targets aligned to the Paris Agreement, whilst significantly underweighting or excluding those that do not. In the oil and gas sector, for example, the Index includes Shell and Repsol which, according to the TPI tool, had (at the time of writing) aligned their emission reductions plans with a Paris pathway. ExxonMobil, Chevron, and BP, by contrast, are all excluded, though they would be allowed to join the Index if they subsequently set Paris-aligned targets. A month after the launch of the Index, BP announced that it will strive to join Shell and Repsol by working to reach net zero by 2050.

At its launch, the Archbishop of Canterbury commented that the Index “ demonstrates that it is possible to act, to take leadership and in doing so challenge the market” [C]. It also shows that a third generation of climate indexes, genuinely able to drive climate action, is now possible. The CoE Pensions Board has issued an open invitation for other pension funds to consider this approach. Its own investment portfolio has been significantly improved by its use of the Index, reducing its overall carbon intensity by 49%. The Index methodology has resulted in improvements in its portfolio in relation to climate-relevant metrics, including: an increase of 35% in exposure to green revenues; a reduction of 69% in exposure to fossil fuel reserves; and a reduction of 36% in exposure to operational CO₂ [C].

LSE research is essential to TPI. In 2018, TPI won the “Finance for the Future Award” in the category “Driving Change Through Education, Training and Academia”. According to the judges’ citation: “ The Grantham Research Institute is central to the Transition Pathway Initiative, enabling investors to make climate-competent decisions using academically rigorous data via a clearly accessible and open-source tool” [D].