Climate change not only poses risks but also investment opportunities in infrastructure, impact investments and possibly even private equity, according to René van de Kieft, chief executive of the €123bn asset manager MN.
Commenting on a recent paper published by the Sustainable Pension Investment Lab (SPIL), a Dutch thinktank of which he is a member, Van de Kieft gave several examples of immediate investment opportunities.
San Francisco’s sea defences could be strengthened and smart technologies could be adapted for clean energy generation, he said. Developers were making progress in areas such as climate control and energy-efficient lighting, Van de Kieft added, citing the development of an energy-efficient ice-skating rink in the Dutch town of Heerenveen.
Large family-owned firms could also play an important role, the chief executive said, citing a firm that was developing a waste-powered electrical industrial dryer for food and fodder, to replace current gas-guzzling ones.
“Investments in sustainable technologies could get a boost through these players,” he said.
In Van de Kieft’s opinion, infrastructure and property projects also offered investment opportunities for pension funds, pointing at plans to improve sewerage systems to deal with increasing rainfall as a result of climate change.
He also mentioned investments in “truly sustainable offices in London and Paris with excellent prospects for returns”.
MN’s CEO forecasted that large pension funds, which already invest in these kind of projects, would further ramp up their allocation.
He said he agreed with Deutsche Asset Management’s recent observation that small- and medium-sized pension funds insufficiently appreciated important immediate climate risks, such as the impact of hurricanes and flooding on production facilities.
The SPIL report reiterated that no pension fund could ignore climate risk, especially after supervisor De Nederlandsche Bank indicated that schemes’ climate policy was to become part of its supervisory framework.
Earlier, the regulator indicated that pension funds were more suscepticle to climate risk than insurers and banks, but that they also had more potential to benefit sooner from the upward potential of some investments.
The SPIL paper concluded that a quick start to a gradual and orderly transition to a sustainable economy would be best for pension funds.
The longer they waited until the physical impact of climate change was visible, the more difficult it would be to remove climate risk from their investment portfolio, it said.
Citing figures from the Economist’s Intelligence Unit, SPIL said worldwide there would be $4.2trn (€3.6trn) of value at risk at the end of this century if global warming continued at current trends.
This amount could increase to $13.8trn if global average temperatures were to rise by 6°C rather than 2°C.
Van de Kieft emphasised that climate risk would affect all sectors and asset classes.
Newton IM joins investor climate group
In other news, Newton Investment Management has joined the Institutional Investors Group on Climate Change (IIGCC). IIGCC is a forum of 146 “mainly mainstream” investors with over €21trn of assets uner management, including nine of the top 10 largest European pension funds or asset managers.
On the occassion of the recent round of UN climate change negotiations in Bonn (COP23), the IIGCC confirmed it was building a new programme focussed on investor practices and disclosure of climate risk.
Speaking at the COP23 in Bonn, Peter Damgaard Jensen, CEO of Danish pension fund PKA and chair of the IIGCC, said the investor-focussed programme completed its existing programmes of engagement with policymakers and shareholder engagement with corporates.
The new programme would allow asset owners and managers to ”share best practice around assessing, managing and reporting climate risk and investing in the opportunities that support a smooth transition to a low carbon economy,” he said.