Most pension funds, foundations and money managers view climate change as a potentially significant investment risk as well as an investment opportunity, according to responses by institutional investors generally committed on the issue to a global survey, whose findings were released Monday.
In all, 98% of pension funds and foundations and 87% of investment management firms surveyed believe climate change poses risk and offers opportunities.
As a result, 57% of pension funds and foundations and 80% of money managers surveyed make specific reference to climate change risk in their investment policy, according to the Global Investor Survey on Climate Change: Annual Report on Actions and Progress 2010.
Asset owners — pension funds and foundations surveyed — are considering climate change when hiring external money managers, the 44-page report said.
The survey was commissioned by the North American Investor Network on Climate Risk, the European Institutional Investors Group on Climate Change and the Australia/New Zealand Investor Group on Climate Change.
Mercer Investment Consulting conducted the survey. Mercer sent separate surveys late last year to asset owners and money managers, all members of the investor networks on climate change, and they were returned in February, said Christopher Davis, director of investor programs at Ceres, which oversees the Investor Network on Climate Risk, a group of 100 pension funds and other institutional investors.
Participating institutional investors generally are likely to have a higher level of commitment than other investors to climate issues, Mr. Davis said in an interview.
“The respondents overwhelmingly believe this is an issue that will affect their portfolios and are taking various actions” to control risk as well as “taking advantage of investment opportunities,” Mr. Davis said.
Many of these institutional investors are “integrating climate change into their investment practices in various ways,” Mr. Davis said.
Embedding such issues mean, for instance, an investment analyst or portfolio manager “would look at climate risk along with other risks that would affect a company's performance” to make investment decisions, Mr. Davis said.
Neither the survey nor the report on the findings sought to address any linkage between integration of climate change issues in asset management and investment performance, Mr. Davis said.
“The report talks about what investors are doing to mitigate or avoid (climate change) risk and take advantage of opportunities” it presents, Mr. Davis said.
Risks include how climate change might affect resources — from water supply to extreme weather — and their use in corporate operations, as well as reputational risk as consumers seek out companies perceived as green, or environmentally aware, Mr. Davis said.
Investment opportunities could come in developing technology to improve energy efficiency or reduce dependence on certain resources or cleaning up pollution, he added.
The report said: “It is clear from our survey that credible and consistent climate change legislation and regulation is required to drive greater integration of climate change into investment practices and to provide the major impetus for a shift from high-carbon to low-carbon investment. Without strong climate policy that provides transparency, longevity and clarity for investors, the revolution that is called for in transforming our energy systems will not be possible.”
The report is based on responses from 44 asset owners and 46 asset managers whose combined assets total more than $12 trillion. Of the respondents, five asset owners and nine money managers are based in North America; 23 asset owners and 18 money managers, in Europe; and 16 asset owners and 19 asset managers, in Australia and New Zealand.
Among the respondents were the California Public Employees' Retirement System, North Carolina Retirement System, General Board of Pension and Health Benefits of the United Methodist Church, BBC Pension Trust Ltd., BT Pension Scheme, PGGM Investments, Railpen Investments, Australian Government Employees Superannuation, The Nathan Cummings Foundation, BlackRock, BNP Paribas Investment Partners, Calvert Investments, Deutsche Bank AG, F&C Management, Franklin Templeton Investments, Hermes Fund Managers Ltd., Kleinwort Benson Investors, Pax World Management LLC, Prudential Investment Management, Robeco, Scottish Widows Investment Partnership, State Super, State Street Global Advisors, Northern Trust Co. and Walden Asset Management.