‘The scales have tipped’: Majority of investors taking action on climate change

The number of the asset owners recognising and acting on the risk of climate change has risen by almost a fifth in the last year, with 60% of the world's biggest investors taking steps to protect their portfolios, a new report has revealed.

The fifth Global Climate Index report from independent non-profit Asset Owners Disclosure Project (AODP) rates the world’s 500 biggest asset owners on their ability to manage climate risks within their portfolios, ranking firms across a ‘leaders’ to ‘laggards’ spectrum covering governance and strategy, portfolio risk management and metrics and targets.  

The report found that 60% of these asset owners, with funds worth $27trn, recognise the risks associated with climate change and the economic opportunities of the low-carbon transition. The report has recorded an 18% increase in the number of firms scaling-up climate mitigation within their portfolios, largely driven by European and Australian markets.

AODP’s chief executive Julian Poulter said: “The Paris Agreement sent a clear message of global commitment to tackle climate change. Institutional investors are responding by rapidly scaling up action to tackle climate risk and seize opportunities in financing the low carbon economy. This is recognised as a key issue by the Financial Stability Board and our Index enables asset owners and managers to report against the framework which will be recommended to the G20.”

The report found that many investors are aligning themselves with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which revolve around calls for companies to adopt climate-disclosure and add a sense of flexibility to evolve reporting measures as the practice matures.

The 2017 iteration of the report marks the first time that the world’s 50 biggest asset managers, who manage more than 70% of global assets undermanagement worth $43trn, were assessed. The report found that these 50 are leading the way in climate action, with just three US funds ignoring the issue.

In total, 201 asset managers controlling $12.5trn in investments “show no evidence” of climate risk action, a trend described by Poulter as “shocking”. “As the number of these laggards falls, their exposure to market repricing grows significantly higher and a time may be approaching when it is too late to avoid portfolio losses,” the chief executive added.

UK focus

Four of the top five asset manager leaders are based in the UK. However, the Legal & General Investment Management, Aviva Investors, M&G and Schroders all rank behind Netherlands-based APG Asset Management in the top five.

The UK, which ranks third for asset managers and ninth for asset owners, has a range of performers in regards to climate risks. The Environment Agency Pension Fund was ranked as the world’s second best performing asset owner, but the Tesco Pension Scheme is one of five UK pensions failing to act on climate change, putting customers’ retirement savings at risk, according to the report. In total, the UK has 43 asset owners in the top 500 with investments worth $3,171bn.

In the middle of the performers is Macquarie, the Australian investment bank set to own the Green Investment Bank. The report describes the firm as taking the first steps to recognise the financial risks of climate change.

Asset owner investment into low-carbon projects and companies has also risen by 68% to $203bn, although this represents just 0.5% of total assets under management.

The report arrives on the same week that business leaders, which represent $4.9trn in assets under management and around $700bn in total revenue, convened through the World Economic Forum to issue an open letter to G20 nations to impose actions that promote transparency and long-term investment decisions in the private sector.

Matt Mace

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