Protecting Pensions From Climate Risk -- And The World From A 'Sub-Clime' Crisis?

Protecting Pensions From Climate Risk -- And The World From A 'Sub-Clime' Crisis?

September 2016


Acting on climate change risk in the name of responsible investment has gone way beyond being an ‘ethical’ stance. Being in the market for both return and reputation involves hedging portfolio risk. However, globally “nearly half of the world’s biggest asset owners are doing nothing at all to mitigate climate risk” says a report just out.

Those who ‘get it’ are moving fast, and providing leadership, it says. But there is a long way to go for the ‘learners’ and the ‘laggards’ to make up a gap that could have alarming consequences, it suggests.

After the legacy of ‘sub-prime’, could there be a fear of ‘sub-clime’ in the financial system going forward?

The Asset Owners Disclosure Project’s (AODP) annual benchmark report on the industry is focused on the need to protect the savings and financial security of hundreds of millions of people, including you and me.

It finds that a fifth of the world’s biggest investors with $9.4 trillion in funds are taking action to mitigate climate change risk against a backdrop of low-carbon investments and of shareholder resolutions for climate action being supported. Another 157 investors worth $14.1 trillion are taking “first steps.”

But there are still 246 investors with $14.1 trillion in funds who are “ignoring climate risk completely,” says the AODP report.

Very few of them are acting on the warnings from the G20 Financial Stability Board that climate action could leave fossil fuel and other high-carbon investments as worthless “stranded assets.” Add the mental image of Mark Carney, Governor, Bank of England speaking out on this subject, and it might be an even more compelling thought.

But ‘stranded assets’ have not captured that many imaginations in a meaningful way – yet.

“Climate change risk is now a mainstream issue for institutional investors and last year has seen many significantly step up their situation to manage this. However, only a handful are protecting their portfolios from the very real danger of stranded assets, and it is shocking that nearly half of the world’s biggest investors are doing nothing at all to mitigate climate risk,” says Julian Poulter, CEO, AODP.

Here are the leaders in the list of the world’s biggest investors managing climate change risk:

In terms of the geographical distribution of leaders and laggards, it looks like this:

The Netherlands is the most active country by far with $39 billion invested in low carbon, or 3.4% of Assets Under Management (AUM). The United Kingdom’s Environment Agency Pension Fund has 26% of its portfolio in low carbon assets, the highest in the index. The United States, on the other hand, ranks 9th in the Country index, behind both The Netherlands (sixth) U.K. (seventh) and Australia (third).

Seven countries account for nearly $33 trillion of pension investment , with the U.S. leading with $21.8 trillion, according to Willis Towers Watson, Global Pensions Assets Study, 2016.

Leader countries w:leader:laggard performance

On engagement, 13% of asset owners – and a staggering 97% of the ”leaders” - have staff dedicated to integrating climate risk management into the investment process. These figures are up from 9% and 79% respectively from last year.

The Financial Stability Board (FSB), which Mark Carney chairs, set up a task force to recommend how asset owners and other financial intermediaries should report the “potential impact of climate change on their bottom line.”

The Task Force On Climate-Related Financial Disclosures (TCFD) has been busy spreading the word. Its Chair, Michael Bloomberg, told an audience in New York recently celebrating the 10th anniversary of the launch of the U.N. – supported Principles For Responsible Investment (PRI) : “Climate risk is the biggest risk we face today.”

Mr. Bloomberg and Mary Schapiro, former Chair of the U.S. Securities & Exchange Commission, who is also an advisor to TCFD, were on a panel discussing climate and transition risk.


This article was written by Dina Medland from Forbes and was legally licensed through the NewsCred publisher network.

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