LONDON: The Asset Owners Disclosure Project (AODP), an organisation that rates large funds on management of climate risk, has today formally asked over 1000 asset owners to reveal how they govern their exposure after major pledges by investors at the UN Climate Summit.
The disclosure requests, that will form the basis of AODP’s 2015 Global Climate Investment Index survey, follow a plethora of commitments and investor led initiatives around the UN climate summit in New York last week.
These commitments include the Global Investor Coalition’s statement to the summit signed by 347 investors who are worth a combined $24 trillion, twice the cost of completely solving climate change on the basis of the IEA 2 degree carbon scenario, and the UN Environment programme whose investors plan to decarbonise $100 billion of high carbon assets.
Separately, some of the world’s most influential investors backed a new portfolio carbon footprint disclosure initiative in Canada last week. The first signatories to the Montreal Carbon Pledge have more than $500 billion of assets under management.
Against this backdrop, AODP challenges the financial community — including 800 pension funds — to stop paying lip service to climate action and to translate words into urgent action.
“This is the moment for asset owners to prove to beneficiaries and stakeholders that they are serious about the commitments made at the UN Summit. The gap between investor leaders and laggards on climate action is growing rapidly and the world needs to know how large investors are pricing portfolio risk,” said AODP CEO Julian Poulter.
“Leading asset owners are already turning their backs on Wall Street as a way to price this long term risk effectively. The pressure to either divest, reduce fossil fuel investment or strongly engage is greater than ever and any fund who can’t demonstrate action risks intense scrutiny from all stakeholders,” he said.
AODP’s 2014 Global Climate Index had only 5 AAA rated funds, including US pension giant the California Public Employees Retirement System, out of 460 rated (1%) that were seen to be proactively managing climate risk. In 2014 a massive 80% of asset owners were either ‘D’ rated (abysmal) or ‘X’ rated because there was no evidence of any action on climate risk. 180 funds fell into the latter category.
The index was built following information requests to the world’s 1000 largest asset owners including over 800 pension funds, 80 insurance companies, 50 sovereign wealth funds and 30 foundations/endowments. Together, they manage more than US$70 trillion.
The survey focuses on five main categories – transparency, risk management, investment chain alignment, active ownership and low-carbon investment. It includes asset owners from 63 countries.
Poulter added: “The disclosure challenges the very core of these asset owners because climate change itself challenges every fundamental investment process and models that the funds use. We cannot afford to arrive at COP2015 with a Mexican stand off between politicians and investors over climate action -the asset owners must lead the way.
“Pension members can sense that the pressure is working and the leaders have responded to this. We now have to expose the green-washers who enjoy signing statements but who have no intention of acting decisively.
“The AODP ‘hypocrisy’ index will be released at the same time as the main index in 2015 showing which funds are making the most public commitments whilst failing to demonstrable any action.”
The Asset Owners Disclosure Project was originally developed in 2008 as an initiative of Australia’s Climate Institute.
Today the two maintain a close working relationship but the AODP is an independent global not-for-profit organisation aiming to protect people’s retirement savings from the risks posed by climate change. It does this by helping funds to redress the huge imbalance in their investments between high-carbon assets (50-60% of a portfolio) and low-carbon assets (typically less than 2%) and realigning the investment chain to adopt long-term investment practices.