Institutional investors are increasingly aware of the investment risks and opportunities afforded by climate change, a Mercer survey has found.
More than 50 per cent of respondents to the survey decided to include climate change considerations in their future risk management and strategic asset allocation processes.
This reflects the growing awareness of investors of the threats posed by global warming to their assets, and is of particular importance given the lack of global consensus on climate change issues, which has stalled the implementation of a new climate policy.
‘A new binding (climate change) agreement is not expected to be in place until 2020,’ said Mercer’s Asia- Pacific head of responsible investment Helga Birgden. ‘For its part, Mercer will continue to offer forward- looking, strategic advice and solutions to help our clients address long-term risks and opportunities associated with climate change.’
This is further exacerbated by the fact that traditional models for strategic asset allocation cannot adequately capture the changing effects of climate change.
‘By embedding a scenario analysis process and monitoring key climate change developments over time, investors can develop an ‘early warning’ system to help form and track a view of future climate-related outcomes that will influence the volatility and returns of asset classes,’ the survey report said.
In addition, the report found that ‘climate-sensitive assets’ such as sustainable equities, renewables and commodities such as timberland and agricultural land performed comparatively well across the mitigation scenarios compared to core assets.
Australia and the Pacific region were also seen as being particularly vulnerable to climate change risks, such as days of extreme heat and greater wind speeds that would contribute to a higher fire risk.
As a result of the report, superannuation fund AustralianSuper has contracted a specialist engineering firm to undertake an assessment of the physical risks that could impact its assets from 2030 to 2050.
Similarly, California Public Employees’ Retirement System (CalPERS) has adopted climate change as a top priority, and is ‘implementing a number of actions which are consistent with the findings of the study’, said Anne Simpson, a senior portfolio manager for corporate governance.
These are just two of the 12 investors surveyed, whose total nett assets under management come to approximately US$12 trillion.
The report of the study that examined the long- term investment implications of climate change for strategic asset allocation was released as part of the two-day Investor Network on Climate Risk Meeting (INCR) and Investor Summit on Climate Risk and Energy Solutions being held in New York and ending today.
