Institutional asset owners in Europe, Asia and, to a lesser extent, the U.S., are committing to net-zero goals and will increasingly want portfolio-level metrics for that, according to a white paper released Tuesday by Cerulli Associates.
"Over the next 12 to 24 months, asset managers should anticipate a strong uptick in interest in measuring portfolio temperature," Cerulli said.
The white paper found that among institutional asset owners pledging formal commitment to net-zero, 44% in Asia and 43% in Europe do so, while it drops to 32% in the U.S. It also found that an additional 49% of European institutional asset owners plan to make a formal net-zero commitment within the next two years, compared with 31% in Asia and 29% in the U.S.
In Europe, about 80% of institutional investors ask asset managers for data on exposure to energy transition risks and physical climate risks, and 61% request the carbon footprint of their portfolios.
In the U.S., 38% already require climate risk reporting from managers and 34% plan to within two years. In Asia, Cerulli predicts that in the next two years, asset owners' portfolio-level exposure to climate risks, security-level exposure to climate risk and scenario-testing metrics for climate change will be most requested by asset owners.
Currently, 88% of asset managers in Europe and 79% in the U.S. can report on the carbon footprint of their investment portfolio; regarding exposure to energy transition risks and physical climate risks, 29% of European managers and 32% of U.S. can report. Reporting on a 2-degree scenario's impact on a portfolio is possible for 29% of managers in Europe and 18% in the U.S., the white paper said.
Asset management firms are getting better at risk monitoring, allocations to sustainable investments, and decarbonization strategies as more granular data is collected, but sourcing data is still an obstacle, said David Fletcher, the paper's senior editor, in a news release. "Managers, especially those in Europe, that can quickly solve such data and reporting challenges will be well positioned."
"We believe that institutional investors in this region will be looking to partner with asset managers that offer strong expertise in climate risk assessment and reporting" as European institutional investors increasingly focus on scenario analysis and stress testing, Mr. Fletcher said.