The top 50 asset managers and top 20 investment consultants are due to be rated on how well they manage climate risk when the Asset Owners Disclosure Project (AODP) later this year launches a set of indices to “turn the spotlight” on asset owners’ suppliers in the investment chain.
In the autumn, the organisation will launch rankings of asset managers, investment consultants, proxy/engagement advisers and rating agencies on their approach to climate risk.
The AODP already does this for asset owners, via its Global Climate 500 Index, and the new indices will be modelled on this.
The fourth edition of the Global Climate 500 Index will be published in early May.
Julian Poulter, chief executive at the AODP, said the leading asset owners needed support to “overcome resistance within supplier communities and the perverse incentives that exist”.
“Our new indices will extend the same climate rating criteria to the whole investment chain, showing the leaders and laggards in black and white,” he said.
“There can now be no escape from scrutiny further down the chain.”
The new Global Climate Asset Manager Index will rate the top 50 asset managers covering 70% of the market and more than $40trn (€35trn) in investments, according to the AODP.
It will assess how institutions are managing climate risk, investing in the low-carbon economy and engaging with investee companies on these issues.
It will base the ratings on direct disclosure by those being assessed and/or publicly available information.
Poulter told IPE it would distribute the assessment templates in the next 2-3 weeks, for asset managers and the other agents.
He said a “power shift” had occurred over the past few years as the range of asset owners speaking to their fund managers about issues such as climate change had broadened, and that asset owners would be encouraging their suppliers to provide disclosure for the AODP indices.
“The asset owners need this data,” he said.
“In fact, we all need this data. Relative data is one of the things that makes a market more efficient. We just need to get some transparency from all of these agents.”
Regulators will also benefit from the disclosure and the AODP’s rankings, according to Poulter.
Having started to design this new set of indices some 6-12 months ago, the AODP said it was encouraged by the stance taken by the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD).
“Our whole thinking was predicated on the assumption – and we’re delighted it happened – that the FSB would keep the range of agents under its own thinking as broad as it has done,” said Poulter.
The taskforce is developing a climate disclosure framework and has said it drew up a comprehensive list of stakeholders that would ensure all parts of the credit and investment chain were covered.
In addition to the Global Climate Asset Manager Index, the AODP will be releasing similar assessments that rate other actors in the investment chain on the same criteria – the top 20 investment consultants, the top 20 proxy/engagement advisers and the three main rating agencies (Moody’s, Standard & Poor’s and Fitch).
Investment consultants, said the AODP, “are the primary advisers of asset allocation for asset owners”.
“They often advise asset owners on choice of fund manager and play a key role in deciding where funds will be invested,” it said.
Proxy/engagement advisers, according to the AODP, are “the route through which many asset owners engage with the market, and their votes play a critical role in determining whether companies shift to low-carbon business models”.
Rating agencies, meanwhile, “have a vital role to play in assessing the long-term prospects of fossil fuel companies and the sovereign debt of countries that export fossil fuels”.
In launching the new indices, the AODP hopes to help “drive change down the investment chain”.
This language and focus chimes with a recent report from the UN-backed Principles for Responsible Investment (PRI), which called on the asset-owner community to send clearer signals to the rest of the investment chain about responsible investment/environmental, social and governance issues.