Some of the world’s largest and best known investors continue to make a big gamble on accelerating climate change by investing in heavily carbon-exposed assets, while only a small minority are blazing a trail to a safer, low-carbon world.
The third annual Asset Owners Disclosure Project (AODP) index of the top 500 global asset owners found that nearly a half of the funds surveyed (232) did absolutely nothing to protect investments under their stewardship from the threat of climate change.
The AODP names nine asset owners as the best performers. Rated AAA, they are (in order of overall ranking): Local Government Super (Australia); KLP (Norway); CalPERS (US), ABP (The Netherlands); Environment Agency Pension Fund (UK) New York State Common Retirement Fund (US); Australian Super; PZW (The Netherlands) and AP4 (Sweden).
Two Dutch funds, ABP and PFZW make the top 10.
AODP CEO Julian Poulter says: “It is encouraging for Dutch pension members to see two funds doing so well,but remember that The Netherlands is uniquely exposed to the physical risks of climate change so all Dutch funds now need to step up.”
“Those asset owners hoping that policy-makers bail them out of their climate risks need a reality check. These funds have a duty to mitigate portfolio risk against continuing political intransigence everywhere. The leading funds know this and they are increasingly underweight carbon to the extent that if every fund copied their approach, we would be well on the way to solving climate change,” he adds.
“It is now up to every pension fund member or insurance company shareholder to drive their funds into copying that model and taking the world into a safer climate.”
The index lists the climate performance of the world’s largest 500 asset owners, including pension funds, insurance funds, sovereign funds, foundations and endowments. Together these funds own $40 trillion assets, most of the assets in our economies.
“People understand that governments will not regulate carbon properly but they now realise that these massive funds at the top our financial system have legal and financial responsibilities to manage climate risks,” Poulter says.
Funds rated A or higher in the index are protecting their investments by engaging with the companies they own, divesting of heavily carbon-exposed assets, or deploying hedging strategies. The laggards – those rated D or X – have simply failed to calculate the odds of a “sub-clime” crisis’.
“They’re betting around 20-1 that either the fossil fuel company influence will last forever, or that their fund managers will bail them out of a crisis – but that didn’t work too well during the last systemic crisis did it?
The laggard asset owners are driving their funds without climate insurance and one day they’ll be in a nasty market climate correction and probably end up in court. The X-rated funds are showing willful negligence given the coverage about the issue and the number of their peers discussing it at the highest levels.”
Some key data points in the index are:
- Only 7% of assets owners are able to calculate their portfolio emissions
- Only 1.4% of asset owners have reduced their carbon intensity from the previous year
- Only 2% of asset owners have an emissions intensity reduction target for next year
- No fund (including those who have actually partially divested) has yet calculated their portfolio wide fossil fuel reserves exposure
Last Thursday, AODP and London-based environmental law firm ClientEarth announced they will work with pension fund members to challenge trustees and managers to fulfil their legal duty to protect investments from climate risk. The campaign could result in a test case to clarify the legal duties of pension fund fiduciaries in the face of financially material climate risk.
The 2015 AODP Index has moved on from transparency and completely focussed on climate performance and so does not credit any fund who has made divestment or other risk based commitments without clear evidence of achievement. The rating methodology is comprehensive and available on the AODP website at www.aodproject.net.