London / Sydney / Boston / Hong Kong – The European Institutional Investors Group on Climate Change (IIGCC), the North American Investor Network on Climate Risk (INCR), the Australia/New Zealand Investor Group on Climate Change (IGCC) and the Asia Investor Group on Climate Change (AIGCC) have on August 5 published a report detailing the investment practices of asset managers and asset owners such as pension funds, relating to climate change.
The report details the results of the third global survey of investment practices, which was conducted by Mercer and is based on responses from thirty-seven asset owners and forty-seven asset managers with collective assets totalling more than USD $ 14 trillion.
The results show that a majority of investors view climate change as a material risk and as a consequence have retained, and in many cases advanced, their commitment to addressing climate change in their investment activities. This is despite wider economic challenges and continuing policy uncertainty. There is a clear trend in the results showing that climate risk analysis is performed within asset classes and for specific investments rather than at the portfolio level. In equity portfolios, for example, an analysis of climate risk was performed by almost all respondents.
Assessments of climate risk are directly influencing investment decisions. Fifty-three per cent of asset managers said that they decided to divest or not invest in listed equities based on climate change concerns, and a majority of asset owners (sixty-nine per cent) said that climate change integration influenced their fund manager decisions in 2012. This was a marked increased on the forty-three per cent who declared the same last year.
An increasing number of asset owners – sixty-three per cent – also said they are monitoring their existing asset managers on how they integrate climate change into their investment processes. This is a ten per cent increase on last year. A majority have conducted formal or informal climate risk assessments of their portfolios.
Despite encouraging signs of progress in the assessment of both low carbon and emission intensive exposures, investors face a number of challenges. These include a lack of clarity on which investments should be measured; patchy carbon signals; limited data, particularly for fixed interest investments, and inadequate company disclosures.
Stephanie Pfeifer, Chief Executive of the European Institutional Investors Group on Climate Change, said, “There are some extremely encouraging findings in this year’s report. Despite the wider economic challenges, climate change is firmly established as a material risk for investors, and their assessment of climate risk is shifting investment decisions. However, investors still face many challenges, not least the on-going policy uncertainty which continues to make measuring long term climate risk and emissions exposure difficult. While clear policy signals do much to help investors measure this risk, the report shows that investors are making progress in the absence of these signals and should continue to do so.”
Chris Davis, Director of Investor Programs at Ceres, a US-based sustainability group that coordinates the Investor Network on Climate Risk (INCR), said, “We are pleased that global investors are continuing to prioritize climate change as a material investment risk and source of investment opportunity. But much work remains to be done, especially in the U.S., to fully integrate climate risk into investment decision-making, and to advance public policies that will accelerate more low carbon investment.”
Nathan Fabian, Chief Executive of the Australia & New Zealand-based Investor Group on Climate Change, said, “We are now at a stage where investment practice and climate policy will need to move together to address climate change risk. Policy will improve, but policy certainty will remain elusive. That is why aligning investment practice with the underlying risks of climate change is so important. It is also why understanding progress in investment practice is so important and why participants in this survey are to be commended for doing so.”
Alexandra Tracy, Senior Advisor to the Asia Investor Group on Climate Change, said, “We are delighted to have been able to distribute the survey this year to the AIGCC network for the first time. Some of the greatest climate challenges are to be found in Asia, but many investors in the region are just beginning to consider how to respond. Participation in global initiatives like the survey is very valuable in helping investors to learn and benchmark from each other.”
The report also includes twelve case studies showcasing leading examples of climate and ESG risk monitoring by investors globally. These include the development by pension funds of new ESG benchmarks against which investments are assessed, and the commissioning of independent experts to undertake comprehensive reviews of climate change investment policies, such as is the case with the USD $ 12 billion Church of England National Investing Bodies.
Other Key Findings
- Most asset owners in this year’s survey (83%) consider the extent to which managers integrate climate change into their investment process and ownership activities and 69% indicated that it influenced their selection decision (up from 43% last year).
- 25% of asset owners continue to make changes to their investment strategy based on their assessments of climate risk, inspite of on-going global policy uncertainty. This number is unchanged since last year.
- There has been a meaningful improvement in the adequacy of consulting advice on climate change, with 71% providing a favourable response compared to 26% last year.
- 70% of asset owners and 60% of asset managers reported low carbon investments.
- 40% of asset owners included climate change criteria in the Investment Management Agreements (IMAs) for new mandates.
Click here to read/download the Full Report.
Source: Global Investor Coalition on Climate Change (GIC).
In December 2012, the four regional climate change investor groups, IIGCC (Europe), INCR (North America), IGCC (Australia & New Zealand) and AIGCC (Asia) formed the Global Investor Coalition on Climate Change (GIC) for joint projects and initiatives that benefit from global collaboration. The coalition provides a global platform for dialogue between investors and governments on policy and investment practice related to climate change and a focal point for international fora. The work of the GIC is guided by a three-year Action Plan leading up to 2015 consistent with the priorities of the member networks. For more information, visit www.globalinvestorcoalition.org.