The European Institutional Investors Group on Climate Change, the North American Investor Network on Climate Risk, the Australia/New Zealand Investor Group on Climate Change and the Asia Investor Group on Climate Change have 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.
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, in spite 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