Sovereign wealth funds are doing more to address climate change in their portfolios, according to a survey released March 14 by the International Forum of Sovereign Wealth Funds and the One Planet Sovereign Wealth Fund Network.
“Since 2020, the survey results have revealed sovereign wealth funds’ rapid progress in making their portfolios more resilient to the impact of climate change by measuring and monitoring their climate impact and looking to mitigate it,” the survey report said.
The 34 respondents to the fourth annual survey of IFSWF and OPSWF members represent 40% of the world’s 95 sovereign wealth funds, and 90% of the roughly $7 trillion in assets under management, according to IFSWF’s database.
The latest survey found more than one third of them carbon footprinting their portfolios in 2023, up from 18.5% in 2022. All but three of them see addressing the effects of climate change as consistent with their investment mandate, with 68% saying it would improve long-term returns.
The percentage of sovereign wealth funds with a specific mandate to address climate change increased to 29% from 14% in 2022.
After 2022 saw a period of consolidation of climate tools and targets, 2023 brought another surge in sovereign wealth funds adopting climate change analytical tools, “showing how government investors were taking action and materially changing their processes, policies and portfolios,” the report said.
The latest look also found sovereign wealth funds expanding beyond unlisted assets like private equity and real estate to listed markets including fixed income and hedge funds. While private equity is still the preferred asset class for sovereign wealth funds’ climate change strategy, with 66.7% of respondents following that strategy, 53% now select listed equities for climate-related themes, up from 33.3% in 2022, the report said. It also found more interest in catastrophe insurance as an asset class, and more consideration of allocations to green bonds.
