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).
AODP CEO Julian Poulter says: “Pension Funds and other asset owners who think that policymakers will provide them with a smooth transition need a reality check. The leaders understand that continuing political intransigence is one of the risks that needs mitigating and the laggards must accelerate immediately.”
The AODP Global Climate 500 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 nearly $40 trillion assets in our global economy.
The UK ranks tenth among countries and has 35 D- and X-rated funds, which define the laggards – including 27 pension funds.
“Members of these laggard UK pension funds can rightly expect their funds to be doing more to protect their retirement savings from stranded asset impacts to their portfolio. Many members are already angry and looking to us for ways to help them hold their funds legally accountable for the size of the gamble they are taking and the lack of portfolio protection in place,” Poulter says.
“BP and Shell are a significant source of dividends for UK pension funds. It simply isn’t good enough to sit back, expect markets to manage their demise smoothly when history shows the market correction is likely to be sudden and brutal. This is a core risk issue and the laggard funds think that they can hide behind the herd, but they can’t,” he adds.
Asset owners are 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?
“We couldn’t really afford the sub-prime crisis but we certainly can’t afford the sub-clime crisis,” Poulter says.
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.