GLOBAL – Assessments of climate risk directly influence investment decisions, according to a global survey of investment practices by Mercer and various investor climate groups.

The majority of asset owners that responded (69%) said climate change integration influenced their fund manager decisions in 2012.

Meanwhile, 53% managers said they decided to divest or not invest in listed equities based on climate change concerns, up 10% on those that declared the same last year.

An increasing number of asset owners (63%) also said they were monitoring their existing asset managers on how they integrated climate change into their investment processes, another 10% increase on last year.

A majority have conducted formal or informal climate risk assessments of their portfolios.

Stephanie Pfeifer, chief executive at the European Institutional Investors Group on Climate Change (IIGCC), cited "some extremely encouraging" findings in this year's report.

"Despite the wider economic challenges, climate change is firmly established as a material risk for investors, and their assessment of climate risk is shifting investment decisions," she said.  

"However, investors still face many challenges, not least the ongoing policy uncertainty, which continues to make measuring long-term climate risk and emissions exposure difficult.

"While clear policy signals do much to help investors measure this risk, the report shows investors are making progress in the absence of these signals and should continue to do so."

The study revealed that a majority of investors view climate change as a material risk, and, as a consequence, they have retained – and in many cases advanced – their commitment to addressing climate change in their investment activities.

There is a clear trend in the results showing climate risk analysis is performed within asset classes and for specific investments rather than at the portfolio level.

In equity portfolios, for example, an analysis of climate risk was performed by almost all respondents.

Despite encouraging signs of progress in the assessment of both low carbon and emission-intensive exposures, investors face a number of challenges, including a lack of clarity on which investments should be measured, patchy carbon signals, limited data (particularly for fixed interest investments) and inadequate company disclosures.

Chris Davis, director of investor programmes at Ceres, a US-based sustainability group that coordinates the Investor Network on Climate Risk (INCR), said: "Much work remains to be done, especially in the US, to fully integrate climate risk into investment decision-making, and to advance public policies that will accelerate more low-carbon investment."

Nathan Fabian, chief executive of the Australia & New Zealand-based Investor Group on Climate Change, added: "We are now at a stage where investment practice and climate policy will need to move together to address climate change risk. Policy will improve, but policy certainty will remain elusive.

"That is why aligning investment practice with the underlying risks of climate change is so important. It is also why understanding progress in investment practice is so important and why participants in this survey are to be commended for doing so."

Other key findings in the report were:

Most asset owners in this year's survey, 83%, consider the extent to which managers integrate climate change into their investment process and ownership activities, and 69% indicated that it influenced their selection decision, up from 43% last year. 25% of asset owners continue to make changes to their investment strategy based on their assessments of climate risk, in spite of ongoing global policy uncertainty. This number is unchanged since last year. There has been a meaningful improvement in the adequacy of consulting advice on climate change, with 71% providing a favourable response compared with 26% last year. 70% of asset owners and 60% of asset managers reported low-carbon investments. 40% of asset owners included climate change criteria in the Investment Management Agreements (IMAs) for new mandates.

The report also includes 12 case studies showcasing examples of climate and ESG risk monitoring by investors globally.

These include the development by pension funds of new ESG benchmarks against which investments are assessed, and the commissioning of independent experts to undertake comprehensive reviews of climate change investment policies, such as is the case with the $12bn (€9bn) Church of England National Investing Bodies.

The report by the IIGCC, the INCR, the Australia/New Zealand Investor Group on Climate Change and the Asia Investor Group on Climate Change details the results of the third global survey of investment practices.

It was conducted by Mercer and is based on responses from 37 asset owners and 47 asset managers with collective assets totalling more than $14trn.

The report can be found here.