Corporate assets owners, generally, are recognizing the significance of and are taking action to mitigate climate change. That is what the annual benchmark report published by Asset Owners Disclosure Project is revealing, which says that 60% of those asset owners with funds worth more than $27 trillion are being proactive.
That’s an 18% increase from the year before, with Europe and Australia leading the way, the report adds. But it goes on to say that 201 asset owners with $12.5 trillion in investments show “no evidence of any action on climate change.” North American and Asia and trailing behind the pack.
In the United States, low-carbon investments doubled over last year to $55 billion. That compares, for example, to $47 billion in the Netherlands that is a much smaller country. The report goes on to say that there is not a single asset owner in the Netherlands, Scandinavia or Ireland that is ignoring climate change.
“The Paris Agreement sent a clear message of global commitment to tackle climate change,” Julian Poulter, chief executive of the project said, in a statement. “Institutional investors are responding by rapidly scaling up action to tackle climate risk and seize opportunities in financing the low carbon economy.
“It is shocking that many pension funds and insurers are still ignoring climate risk and gambling with the savings and financial security of millions of people,” he added, when the report was released on Wednesday. “(T)heir exposure to market repricing grows significantly higher and a time may be approaching when it is too late to avoid portfolio losses.”
Of the 500 assets owners of all sizes that it surveyed, it labels 34 of them as “leaders” and 34 as “challengers” — the best classifications. And 44 of them are “learners.” But it also said that 187 of them are “bystanders” while 201 are “laggards.” The numbers are improving year-over-year.
The report also separates the asset owners from the asset managers, which are ahead of the curve. For example, 90% of asset managers incorporate climate change into their business strategies while 42% of asset owners do the same. And, 20% of assets managers try to figure out what the carbon emissions will be while 13% of asset owners do.
Implicit in the discussion is whether institutional investors that manage trillions should use their heft to force corporate asset owners to consider socially responsible investments that take into account, for example, carbon emissions and climate change. In the past, those investors have been effective in getting companies to listen and to act, although critics of those policies that the corporate fiduciaries are obliged to do what is in the financial interest of their participants.
“You can deny the science. But money talks. And it is the economics that is driving this,” says Anne Simpson, director of sustainability at the California Public Employees Retirement System (CalPERS) and a member of Investor Network on Climate Risk, on an earlier call. “The political process will work itself out. The markets will drive it.”
Last summer, many pension fund managers also wrote the U.S. Securities and Exchange Commission and asked it to institute stronger reporting requirements for sustainability risks such as climate change.
Prompting companies to gather data and to reveal their potential climate risks is part of a broader trend that is happening among the large institutional investors: environmental, social and governance concerns, which want to see more dollars allocated to ventures that go green. If companies hope to attract such investment, they would adjust their business strategies.
To that end, a separate analysis also released this week by the Energy Transitions Commission said that governments, investors and businesses must seize the opportunity to halve global carbon emissions by 2040 while also ensuring economic development and universal energy access.
It’s doable, it concludes, because the cost of renewables and batteries have fallen significantly while “rapid progress” is being made with such technologies as carbon capture and burial, hydrogen and bioenergy. As such, global regions where the creation and generation of infrastructure and electrification, respectively, are problematic could be good candidates for clean energy projects.
“We are ambitious but realistic. Despite the scale of the challenges facing us, we firmly believe the required transition is technically and economically achievable if immediate action is taken,” Adair Turner, chair of the Energy Transitions Commission said, in a statement.