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INVESTING/PORTFOLIO STRATEGIES

Asset owners turning more attention to climate change risk on portfolios — report

Drought-stricken landscape

The world's largest asset owners are increasingly recognizing the financial risks of climate change and the opportunities presented by a transition to a low-carbon world, said the Asset Owners Disclosure Project.

The AODP Global Climate 500 index assesses progress among the 500 largest asset owners, representing $40 trillion in assets, and also for the first time tracked the 50 largest money managers with $43 trillion in assets under management.

An accompanying report said 60% of asset owners now recognize risks and opportunities, up 18% vs. last year. However, 201 asset owners with investments worth $12.5 trillion show no evidence of taking action on climate risk.

Those taking no action are spread around the globe, with 68% of German institutions, 67% in China, 63% in the U.S., 29% in Switzerland, 26% in Japan and 24% in Canada in this category. Canada had the biggest improvement over the year, with 44% taking no action last year.

The AODP said low-carbon investment by asset owners across the index has grown 68% to $203 billion over the year, but still represents only 0.5% of total assets. U.S.-based low-carbon investment by asset owners doubled to $55 billion, equivalent to 0.5% of country assets, while the Netherlands had $47 billion of low-carbon assets, representing 3.1% of country assets.

Asset owners with the top climate risk recognition ratings were based in Sweden, with the country achieving a BBB rating by the AODP index. Norway came second, also with a BBB rating (other factors determine the order), and New Zealand was third with a BB rating. The U.K. came in ninth place with a CC rating. The U.S., in 15th place, had a D rating. The highest possible rating possible is AAA.

Of the asset managers tracked, 94% are taking action. Europe's 19 money management firms in the top 50 achieved an average B rating in the index, while Dutch manager APG Asset Management, which has $441 billion in assets under management, achieved an AAA rating. Legal & General Investment Management came in second place, with an AA rating. U.S. asset managers account for 27 of the top 50 and manage $30.5 trillion, 70% of index assets, but the average rating was also D.

North America, however, achieved an average D rating, and the AODP said the region is highly polarized. Seven of 183 asset owners are in the index leaders group, while 115 are ignoring climate risk, equivalent to 63%. That proportion is down 4% vs. last year.

The index is available on AODP's website.