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US Investors ‘Lag at Managing Climate Risk’

The Asset Owners Disclosure Project (AODP) has published what it calls the first-ever global climate investment index showing how the world’s biggest investors, including pension funds, are managing climate risk, and no US firms rank in the top 10 (see chart).

New York State Common Retirement Fund is the leading US fund in 14th place, and Canada’s British Columbia Investment Management Corporation is the highest North American fund in sixth place.

The survey “paints a disturbing picture” as the majority of funds don’t recognize the investment challenges that climate change presents, says AODP board member Bob Litterman, the former head of risk at Goldman Sachs.

The research also shows these funds lack transparency, AODP says. Over the summer AODP sent information requests to the world’s 1,000 largest asset owners including over 800 pension and superannuation funds, 80 insurance companies, 50 sovereign wealth funds and 50 foundations/endowments. Collectively, these organizations have more than $60 trillion of funds under management, ranging from about $400 million to $1.4 trillion each, according to AODP.

The AODP received only 17 direct responses out of 1,000 funds. Of these, only half provided full responses to the survey.

Using the responses submitted and analysts’ assessments of 314 funds from publicly available information, AODP built the index. It includes asset owners from 63 countries, in all regions of the world.

Of the 314 asset owners ranked, however, 91 funds had no public information available to enable an external party to assess climate change capability.

The survey focused on five main categories: transparency, risk management, investment chain alignment, active ownership and low carbon investment.

Other key findings include:

  • The ability of funds to respond to and to build capacity around climate change is not affected by size. The No. 1 fund, Australia’s Local Government Super, has just over $6 billion under management, and is surrounded in the Index by very large funds such as South Africa’s Government Employees Pension Fund (GEPF), PFZW, APG Groep, New York State Common Retirement Fund and CalPERS.
  • US asset owners are particularly strong in the area of proxy voting and have tended to be much more active with raising shareholder resolutions, including those related to environmental, social and governance issues.
  • Only GEPF has calculated its exposure to overstated fossil fuel reserve valuations via the balance sheets of its investee companies. For this and other reasons GEPF is ranked second.

A report published earlier this month by the United Nations Environment Programme Finance Initiative said Aviva Investors, UBS, AXA Real Estate, Sonae Sierra and Mitsubishi UFJ Trust and Banking Corporation are among the companies integrating environmental, social and governance (ESG) criteria into investment processes.

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