With the clock ticking more loudly on the universal goal of net-zero greenhouse gas emissions by 2050, some North American pension funds are moving more aggressively to tackle climate change. They are addressing climate change across their entire portfolios, spurred in part by more data on the risks and opportunities, as well as the need to catch up with their overseas counterparts.
"We are now seeing a growing movement of investors that are going to set high-ambition targets for the whole portfolio, using good data across every asset class. There is a rising sense that (climate change) is not something you can address in one sector," said Kirsten Snow Spalding, San Francisco-based senior program director of the Ceres Investor Network on Climate Risk and Sustainability, which represents 175 asset owners with a combined $30 trillion in assets.
"Almost every investor in our network is taking steps toward addressing climate change in their portfolios. The direction of travel is toward science-based targets," Ms. Spalding said.
Case studies developed by Ceres and several global investor networks highlight the various approaches being taken to assess and manage the two fundamental risks of climate change: the physical risk from events such as droughts, wildfires, sea level rise, floods and storms; and transition risk, which can include government climate policies such as carbon pricing and taxes, and technology transition to renewable energy and more resource-efficient technologies.
"An increasing number of large asset owners in North America and other regions are digging deeply into climate risk and opportunities … in ways that are tangible," said Chris Davis, Boston-based senior director of the Ceres Investor Network. While public equities are common targets, "a lot has been done in fixed income and real estate and investors are increasingly moving into private asset classes," he said.
The biggest trend is decarbonization, followed by searches for opportunities to invest in climate solutions, Mr. Davis said. The approaches range from assessing the carbon footprint of different asset classes to developing scenario analyses of how their particular portfolios would perform under various climate policies and transition scenarios.