EUROPE - European pension funds are lagging behind other institutional investors in using climate change as an investment criterion, according to a new survey.

The second annual report from the Institutional Investors Group on Climate Change (IIGCC) shows that 75% of asset owners and over 80% of asset managers are now referencing climate change in their investment policies.

Furthermore, asset owners are placing greater pressure on external managers to take account of climate change, with half now questioning their managers as to the process for integration within investment research, decision-making and shareholder engagement, compared with 30% just a year ago.

When appointing a new manager, 60% of asset owners specifically consider the extent to which climate change is fully integrated into the investment process, while 70% are monitoring their respective managers' performance on climate change.

However, the research found only 40% of pension funds instruct their advisors to consider climate change in their recommendations.

Rory Sullivan, head of responsible investment at Insight Investment and member of the IIGCC steering committee, said: "There are three barriers to action on the part of pension funds."

"First, there is the appropriateness of including climate change in the investment mandate, since it interferes with the asset management process. Next, some pension funds are looking for guidance on how to go about it. The third obstacle is the workload on trustees."

Sullivan says, however, that the IIGCC hopes to publish a guide on how to include climate change references within the investment management agreement over the next year.

The report also states 90% of asset managers are engaging directly with companies on a wide range of climate-related issues such as senior management responsibilities for climate change, integration into business strategies and improving corporate disclosure.

However, it warns investors need to pay more attention to encouraging companies to make absolute emission reductions, while strong signals that governments are taking this issue seriously would help reinforce the message that companies need to prepare themselves for future policy action.

The research was conducted by Mercer and carried out among asset owners and managers representing €2trn of assets under management.

 

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