Investors move to limit impact of climate change on their portfolios
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • Comvest closes credit fund at $1.3 billion
      Wall Street signage in the Financial District of New York
      Assets in alternative investments set record in 2020
      Non-profit questions dividend recapitalization play at Ares portfolio company
      Walker & Dunlop appoints managing director
    • Philip Pearson
      Hymans Robertson chooses head of LGPS investment
      Daniel Celeghin
      Indefi hires New York-based managing partner
      Hub International continues buying spree with IBG acquisition
      Callan brings on 2 executives
    • Pandemic takes toll on real estate fundraising in 2020
      Swedish flags fly from a tourist souvenir shop in Gamla Stan in Stockholm on March 26, 2020
      Systematic hedge fund IPM to shutter after ‘lackluster’ performance, outflows
      Insurers taking on more portfolio risk as pandemic ebbs – survey
      American flags outside the New York Stock Exchange
      Stock shorts collapse as no hedge fund wants ‘head ripped off’
    • Comfortable retirement still on track for most Americans despite pandemic – survey
      Pentegra joins with EPIC to offer 3(16) fiduciary services
      Interest rises in keeping retiree assets in-plan
      Joseph Healy
      Smaller DC plans place greater focus on improving financial wellness efforts
    • CDPQ boosts low-carbon assets to 10% of portfolio
      White House sets ambitious goal for greenhouse gas emissions by 2030
      Yale rolls out 5 principles for endowment on fossil-fuel investing
      Pension funds hear from beneficiaries on ESG – report
    • Girls Who Invest
      MetLife plans 3 internships for Girls Who Invest scholars
      Model home
      Resmark sees niche in buying, leasing model homes
      Riscura stories
      Dystopian tales explore altered retirement reality
      Joel Holsinger
      Ares wants to do good – and profit – with fund
    • Swedish flags fly from a tourist souvenir shop in Gamla Stan in Stockholm on March 26, 2020
      Systematic hedge fund IPM to shutter after ‘lackluster’ performance, outflows
      Karen Karniol-Tambour
      Bridgewater appoints 2 co-CIOs to oversee new sustainable investing group
      Hedge funds post best first-quarter return since 2000
      Jason Kephart
      Managers see good times ahead in 2021
    • The seal of the Securities and Exchanges Commission at the agency's headquarters in Washington
      SEC said to review fund disclosure rules after Archegos rout
      Trillium hires 2 to lead expansion into U.K.
      CDPQ boosts low-carbon assets to 10% of portfolio
      White House sets ambitious goal for greenhouse gas emissions by 2030
    • Blackstone AUM climbs 4.9% in latest quarter
      Trillium hires 2 to lead expansion into U.K.
      Credit Suisse logo
      Credit Suisse expects further hit from Archegos scandal
      Bill Hench
      First Eagle gives wing to small-cap equity team with liftout from Royce
    • Denmark’s ATP plans bid to build North Sea energy island
      PennPSERS taps Verus for oversight consulting services amid probe
      State pension plan funding advances in first quarter – Wilshire
      Sacramento County Employees rebalances equity, fixed-income portfolios
    • Trillium hires 2 to lead expansion into U.K.
      Walker & Dunlop appoints managing director
      Bill Hench
      First Eagle gives wing to small-cap equity team with liftout from Royce
      Philip Pearson
      Hymans Robertson chooses head of LGPS investment
    • EQT closes latest private equity fund at $18.7 billion
      U.S. $100 bills
      AlpInvest raises $3.5 billion for latest co-investment fund
      ILPA members making diversity a bigger priority in private equity
      European private equity deal value, volume hit records for first quarter
    • Pandemic takes toll on real estate fundraising in 2020
      J. Tomlinson Hill
      Two Sigma takes quant expertise into real estate investing
      BentallGreenOak closes latest European fund at $2.3 billion
      Cohen & Steers adds team for new private real estate business
    • Andy Schreiner
      New PEPs targeting firms without retirement plans
      Jackie Walorski
      Contribution catch-up for caregivers gaining favor
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Neal and Brady
      Retirement security could be only issue both sides accept
    • A coin representing Bitcoin cryptocurrency in the U.K.
      Cryptocurrency and digital assets
      Corporate pension contributions
      Eddy Awards 2021
      COVID-19: One year in
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • Orange County Employees commits $55 million to 2 buyout funds
      Alexandria, Va., scouting for DB and DC plan consultants
      Gresham, Ore., hunting for 457 plan consultant
      San Joaquin County casts net for core bond managers
    • Orange County Employees commits $55 million to 2 buyout funds
      Alexandria, Va., scouting for DB and DC plan consultants
      Gresham, Ore., hunting for 457 plan consultant
      San Joaquin County casts net for core bond managers
    • Emerging Market Debt Manager Services
      Real Assets Consultant
      Passive Investment Management Services
      Active Extended Global Credit Manager Search
    • High-yield spreads narrow, default rates drop
      Private real estate funds continue rebound
      Managed account adoption stalls in 2020
      U.S. bonds have worst quarterly return since 1981
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Marcie Frost
      CalPERS: Urgency underscores all areas of providing retirement security
      BPTW cartoon
      P&I’s Best Places to Work marking a milestone
      CalPERS cartoon
      Urgency underscores CalPERS' search for a CIO
      Multiemployer plans cartoon
      Money — but no fixes — for multiemployer plans
    • Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
      COVID-19 Makes LP Portfolio Management More Important Than Ever
      China: the outlook is bright for longer-term investors
      Finding Differentiation in Securitized Assets
    • John Bakarat
      Commentary: COVID-19 and real estate debt – where investors should be looking
      Jake Remley
      Commentary: Inflation expectations vs. reality in the bond market
      Greg Shea and Steven Kindred
      Commentary: The solution for yield-seeking allocators may be hiding in plain sight
      Jim Park
      Commentary: Asian Americans, Pacific Islanders face ‘bamboo ceiling’ in money management
    • Marcie Frost
      CalPERS: Urgency underscores all areas of providing retirement security
      Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
    • P&I Content Solutions
      Research for Institutional Money Management
      P&I Content Solutions
      Top questions for institutional investors
      Sponsored Content By Newton Investment Management
      Growth and Innovation in Emerging Markets
      P&I Content Solutions
      In Challenging Markets, Systematic Global Macro Strategies Could Hold Opportunity
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • Invesco logo shown on the floor of the New York Stock Exchange
      watch video
      1:28
      Invesco’s bid for performance gains
      watch video
      1:23
      The passive fixed-income glut
      watch video
      1:38
      Is it time for DC plans to embrace private equity?
      watch video
      5:39
      The coronavirus pandemic: One year later
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Investing in infrastructure at the right price
      Time for Action: Shifting Pension Dynamics from a Macro and Regulatory Relief Perspective
      Understanding the PEP Evolution
    • POLL: Cryptocurrency investing
      POLL: The Biden infrastructure plan
      POLL: Retirement income solutions
      POLL: Working after the pandemic
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • High-yield spreads narrow, default rates drop
      By the Numbers for April 2021
      Graphic: The state of DC plans
  • Events
    • Conferences
    • Webinars
    • DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
      Retirement Income Conference
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Investing in infrastructure at the right price
      Time for Action: Shifting Pension Dynamics from a Macro and Regulatory Relief Perspective
      Understanding the PEP Evolution
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. INVESTING & PORTFOLIO STRATEGIES
June 05, 2017 01:00 AM

Investors move to limit impact of climate change on their portfolios

Douglas Appell
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Bernhard_Staehli

    The ripple effects of fossil-fuel prices on investment portfolios look set to diminish as the ranks of institutional investors striving to make their portfolios resilient to climate change risks grow.

    Analysts say the past year or two have seen climate-related risks move from the periphery toward the center of investor radar screens, driven by policy — including the landmark 2015 Paris accord pledging governments to limit the rise in global temperatures to 2 degrees Celsius — and the growing competitiveness of wind and solar power.

    The momentum behind investor moves to address climate-related risks and opportunities in institutional portfolios should continue to build, even with U.S. President Donald Trump's June 1 decision to bolt from the Paris accord, industry watchers predict.

    The reality is the economics of renewable energy sources, such as wind and solar power, are improving relentlessly, and that will leave conventional, more polluting segments of the market “in a less competitive position” regardless of what Mr. Trump does, said Ben Caldecott, director, sustainable finance program, at the University of Oxford's Smith School of Enterprise and the Environment.

    The April release of the latest annual report on global trends in renewable energy investment by the United Nations Energy Program and Bloomberg New Energy Finance reported that investments in renewables, led by wind and solar power, came to $241.6 billion in 2016, or 55% of all energy-related investments — the fifth year in a row that investments in renewables outpaced investments in fossil fuel-based power facilities.

    That “convergence of technology and policy” has brought institutional investors to an “inflection point” in addressing the opportunities as well as the risks resulting from significant disruption in energy markets, said Mathew Nelson, Melbourne-based global and Asia-Pacific climate change and sustainability services leader with Ernst & Young, in an interview.

    Asset owner responses to such risks include “hard and fast” divestment strategies; “engaging strongly” with companies and focusing on companies set to benefit from the transition to a low-carbon economy, said Emma Herd, Sydney-based CEO of Australia's Investor Group on Climate Change.

    Investors say they're looking to make their portfolios more resilient to the fallout should governments take steps to honor the Paris agreement's 2-degree target. Such steps could leave big energy companies saddled with “stranded assets” — fossil fuel reserves on their books that could lose value if the reserves couldn't be used without breaching that temperature ceiling.

    Asset owners moving over the past year or so to cut their exposure to fossil fuels have included:



    • the A$37 billion ($27.5 billion), Melbourne-based Health Employees Superannuation Trust Australia, which adopted a passive global equity strategy in April 2016, developed with Russell Investments, targeting carbon dioxide emissions and carbon reserves of 50% below its benchmark;

    • London-based HSBC Bank U.K., which over the past seven months put more than £4 billion ($5 billion) in defined contribution and defined benefit assets in a Legal & General Investment Management strategy tilted to companies with renewable energy revenues and away from high-carbon companies; and

    • the £1.3 billion London-based National Employment Savings Trust, which in February added a “climate aware” global equities fund developed with UBS Asset Management, targeting a 50% cut in “carbon intensity” by tilting toward renewable energy companies and away from high carbon companies.

    Others asset owners are poised to put broader programs in place.

    Matt Whineray, chief investment officer of the New Zealand Superannuation Fund, Auckland, said his NZ$34.6 billion ($24.4 billion) fund will move in coming months to address the “uncompensated risks” posed by climate change, with a focus on reducing the portfolio's exposure to emissions and fossil fuel reserves.

    More than 90% of those reserves come from the 13% of the global equities benchmark accounted for by energy and materials companies, and trimming that exposure could affect a few percentage points of the portfolio, Mr. Whineray said. Broader climate change risks include regulatory changes, physical damage from weather events and disruption to supply chains, he said.

    In addition to reducing exposure to high-risk listed assets, engaging with companies to promote better disclosure of the climate change risks they face and identifying winners from a low-carbon environment to invest in, the final focus of New Zealand Super's strategy will revolve around analysis, said Mr. Whineray: “How do we incorporate climate change risk in the way we think about valuations, risks and investment hurdles?”

    Money managers say that challenge — of taking the long-term impact of climate change into account — doesn't have easy answers at present.

    With few exceptions, it's “not easy to see how climate risks are priced into assets today,” noted Steffen Horter, Frankfurt-based global head of ESG with Allianz Global Investors GmbH.

    Meanwhile, obtaining disclosures from companies about the risks their businesses face from climate change remains a work in progress.

    A recent survey for Ernst & Young of 320 institutional investors globally, released in April, found much greater attention to issues like climate change, coupled with frustration that they weren't “getting the information they need to make nuanced investment decisions,” said Mr. Nelson.

    “The level of disclosure from companies is still pretty much in its infancy,” noted Andrew Gray, senior manager, investments governance, with A$100 billion AustralianSuper, Melbourne. That adds to the challenges of crunching climate risk-related numbers, when the direction of likely changes is clear but the timing is uncertain, he said.

    The release of a final report by the Task Force on Climate-related Financial Disclosure led by former New York Mayor Michael Bloomberg, slated for the end of June, could go a long way in setting the stage for progress on that score, some market veterans said.

    The Financial Stability Board set up the task force at the end of 2015 as an industry-led initiative to come up with recommendations for consistent, comparable, reliable, clear and efficient climate-related disclosures by companies.

    The report could be “a really significant milestone,” providing businesses with “a framework for understanding how to manage (climate change) as a business issue,” said Ms. Herd of the Investor Group on Climate Change.

    “Asset owners, public companies, investors and regulators want more information” in analyzing climate-related risks and opportunities. The TCFD report “is an important step toward that goal,” agreed Bruno Bertocci, a Chicago-based managing director with UBS Asset Management and senior portfolio manager for the firm's global sustainable equity strategy.

    Some observers are less optimistic on that score.

    Disclosure is all well and good but the vast bulk of what asset owners are getting now isn't “fit for purpose,” contended Mr. Caldecott. “Too often people conflate disclosure with data,” he said.

    Related Articles
    Investors urge governments to stand by climate change commitments
    Setting standards for responsible investing/ESG
    Asset owners see Trump's Paris exit as speed bump, not brick wall, for climate …
    Managers plug into energy investments
    Climate change becoming mainstream consideration for asset owners
    Markets so far shrugging off daily dose of global surprises
    Looking for an edge with planes, skiers and snowmobiles
    The delicate balance of investing in energy
    Global public investor assets reach $33.5 trillion at end of 2016 — report
    AP7 divests stocks of 6 energy companies
    Carbon risk, not climate risk
    Enhancing your institution's governance model
    Asset owners can still do more regarding ESG, conference attendees told
    FSB task force releases recommendations for disclosing climate-related financia…
    San Francisco board split on staff-opposed measure to divest fossil-fuel compan…
    Asset owners push to satisfy U.N. goals
    Recommended for You
    More funds testing water on crypto-related assets
    More funds testing water on crypto-related assets
    Money managers eager to make leap to opportunity zone investing
    Money managers eager to make leap to opportunity zone investing
    Index investing: Not as passive as you might think
    Index investing: Not as passive as you might think
    Research for Institutional Money Management
    Sponsored Content: Research for Institutional Money Management
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
    COVID-19 Makes LP Portfolio Management More Important Than Ever
    China: the outlook is bright for longer-term investors
    Finding Differentiation in Securitized Assets
    Green and sustainable bonds in emerging markets
    Portfolio Protection: One Size Fits None
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    April 5, 2021 Page One

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center