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Fund managers worth $14tr say climate change influences investments

Almost 100% of the investors questioned in the report performed climate risk analysis in their equity portfolios

Investors are committed to investing in low carbon solutions, according to a new report

By Sophie Yeo

Investors view climate change as a ‘material risk’, and are adapting their activities accordingly, according to a new report.

Commissioned by the Institutional Investors Group on Climate Change, it is based on a survey of 37 asset owners and 47 asset managers with collective assets totalling more than USD $14 trillion.

It finds many investors are making decisions whether or not to invest based upon climate change considerations, while there has been a significant increase from last year in the number of respondents who are referencing the risks of climate change in their investment policy.

For instance, climate risk analysis is being performed within asset classes, and this is being done for specific investments rather than at portfolio level.

Almost 100% of the investors questioned in the report performed climate risk analysis in their equity portfolios.

Climate change is also playing a role in how asset owners monitor their asset managers; 83% said that they consider the extent to which managers integrate climate change into their investment process, while 69% said that this materially influenced their selection decisions. This figure has risen by 26% from last year.

“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,” said Stephanie Pfeifer, Chief Executive of the European Institutional Investors Group on Climate Change.

She added, “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.”

The report was conducted by a number of investors groups, which focus on addressing the risks and opportunities of climate change in investment practices.

Uncertainty

Despite the enthusiasm of investors to address the problem of climate change across portfolios, these efforts are being hindered by a lack of commitment on the part of policy makers.

Inadequate and halting policy efforts by world governments, and especially those in major greenhouse gas emitting nations, are still undermining the flow of capital towards low carbon technology, says the report.

Nathan Fabian, Chief Executive of the Australia and 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.”

The lack of certainty at a governmental level is one reason why decisive action on the part of investors is so crucial. But, the report adds, while investors are already committing to climate change-related investment practices, they would be willing to do a lot more if they received the appropriate policy signals.

While the survey has shown that large amounts of capital can be invested in clean energy and low carbon solutions.

However, it remains essential that credible and consistent legal frameworks on regulating greenhouse gas emissions and incentivising clean energy investment are established in order to transition towards a low carbon economy.

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