There is far greater recognition of climate-related financial risk among asset managers than asset owners, but leadership on climate change still mainly comes from the latter group, according to a report from the Asset Owners Disclosure Project (AODP).
Publishing its fifth annual benchmark study on how investors address climate risk, the non-profit organisation said that a clear majority of the world’s biggest investors were taking action on climate change and rapidly scaling up action to protect their portfolios.
It said that 60% of the world’s 500 biggest asset owners recognised the financial risks of climate change and opportunities in the transition to a low carbon economy and are taking action. This marked an increase of 18% from the AODP’s 2016 results.
The world’s 50 biggest asset managers were “taking climate risk even more seriously”, according to the AODP.
This year was the first time that the organisation included asset managers in its assessment. The top firms were “well ahead of their asset owner clients in their approach to managing the financial impact of climate change on investment portfolios”, the AODP said.
“However, asset owners are ahead in leading the way on climate risk, with 7% in the Leaders group versus 4% of asset managers,” it said.
Asset manager subsidiaries of asset owners were the most progressive, accounting for nine of the top 10 asset managers, and in some cases surpassing their parents in the rankings, the AODP noted.
The AODP scored asset owners and managers on three key capabilities – governance and strategy, portfolio carbon risk management, and metrics and targets – and graded them from AAA (“Leaders”) to D, with an X category for “Laggards” when no evidence of action was provided.
There were far fewer asset managers in the latter category (6%) than asset owners (40%).
The only asset manager to earn a AAA rating was APG, the €443bn asset manager and provider for the large Dutch civil service pension scheme ABP. Finnish pension insurer Ilmarinen shot up the ranking, climbing 214 places to claim a top 10 spot as a result of new policies, such as linking manager incentives to sustainability goals.
Other selected findings from the study included:
- Almost twice as many asset owners as last year incorporated climate change into their policy frameworks;
- Only 6% of asset owners assess the risk of stranded assets;
- In the US, 63% of asset owners were ignoring climate change;
- 25% of asset owners were investing in low-carbon assets such as green bonds and low carbon indices, a 58% increase from last year;
- 34% of asset managers invest in low-carbon assets, but only $95bn is quantified;
- 73 asset owners (15%) incorporated climate risk factors into their asset manager selection process, a 30% increase on last year;
- 20% of asset owners were embedding climate change risk management into asset manager agreements, up from 12% in 2016.
|TOP ASSET OWNERS (AAA-RATED)|
|Rank||Asset Owner||2017 Rating||2016 Rating||2016 Ranking||AUM US$m||Country|
|1||Local Government Super (LGS)||AAA||AAA||2||7,422||Australia|
|2||The Environment Agency Pension Fund (EAPF)||AAA||AAA||1||3,928||UK|
|3||New York State Common Retirement Fund (NYSCRF)||AAA||AAA||5||178,600||US|
|4||First State Super||AAA||AAA||12||41,560||Australia|
|11||Fonds de Réserve pour les Retraites (FRR)||AAA||AA||16||39,527||France|
|12||Church Commissioners for England||AAA||AAA||10=||10,334||UK|
|14||Etablissement de retraite additionnelle de la Fonction Publique (ERAFP)||AAA||A||10=||28,036||France|
|15||New Zealand Superannuation Fund||AAA||D||109||21,453||New Zealand|
|17||United Nations Joint Staff Pension Fund||AAA||AA||20||53,802||US|
|TOP 10 ASSET MANAGERS (Rated AAA to B)|
|Rank||Asset Manager||2017 Rating||AUM US$m||Country|
|1||APG Asset Management||AAA||441,630||Netherlands|
|2||Legal & General IM||AA||1,140,418||UK|
|6||Allianz Global Investors||BB||532,785||Germany|
|7||Natixis Global Asset Management||BB||871,066||France|
|8||AXA Investment Managers||BB||752,103||France|
|9||Deutsche Asset Management||B||796,409||Germany|
|10||HSBC Global Asset Management||B||413,413||UK|