US funds driving leadership pack to create low-carbon transition. Partisan Congress won’t save retirement savings from climate change.

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 management 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).

While, the US’s country rank is a lowly fourteenth, its leadership pack is driving the world with nearly one-third of funds rated A or above.

AODP CEO Julian Poulter says: “Many US asset owners don’t realise there are many other pathways to a low-carbon economy that will strand their assets and that these pathways are beyond congress control. Funds simply aren’t assessing these risks and mitigating them, believing once again that their fund managers will somehow bail them out.”

“Asset owners and their fund managers need a reality check if they think the US public will once again see large corporations as too big to fail.Chinese policy, innovation, regional convergence, the divestment movement and capital flight could all play a role in the value destruction of high carbon assets and funds should mitigate these risks immediately,” he adds.

“The leadership pack is already moving both by decarbonising their portfolios but by strong engagement with companies who will have to manage the transition. It is now up to every pension fund member or insurance company shareholder to drive their funds into copying the leaders 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 in our global economy.

“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’, he adds.

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

Julian Poulter
+44 7518 410496