Most of the world’s largest asset owners have gotten the message that climate change poses a risk to their portfolios and are pivoting toward greener investments.
Funds worth $27 trillion that comprise 60 percent of the world’s biggest investors are considering climate change when making investment decisions, according to the Asset Owners Disclosure Project. Funds listing climate as an investment criteria rose 18 percent from last year.
“The Paris Agreement sent a clear message of global commitment to tackle climate change,” said Julian Poulter, chief executive officer at AOPD. “Institutional investors are responding by rapidly scaling up action to tackle climate risk and seize opportunities in financing the low carbon economy.”
Hotter temperatures across the globe are leading to rising sea levels and triggering an increase in extreme weather events such as storms and droughts. Bank of England Governor Mark Carney has warned that climate change could lead to “huge” losses for the financial industry. Assets on vulnerable coastlines such as South Florida are expected to see their valuations affected long before the water actually reaches their doorsteps.
The landmark climate deal struck in Paris in December 2015 resulted in nearly 200 countries pledging to reduce their carbon emissions. The agreement has created a new momentum in green investing and accelerated the move away from the dirtiest fossil fuels such as coal.
Top-scoring pension funds in the Asset Owners Disclosure Project’s index included Australia’s Local Government Super, the Environment Agency Pension Fund in the U.K. and the New York State Common Retirement Fund. European and Australian investors led the list.
North American investors lagged the furthest behind the report showed. Sovereign wealth funds in China and the Middle East made up the largest asset owners with low scores. The China Investment Corporation, the Saudi Arabia Monetary Agency’s foreign holdings, and the Kuwait Investment Authority, all with over $590 billion under management, have been slow to adapt, according to the report.
“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,” Poulter said.