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Environment Agency Pension Fund tops tougher AODP climate index

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Nearly half of the world’s 500 biggest investors have still not revealed any evidence to indicate they are taking action to mitigate climate risk, according to a ranking of institutional investors produced by the Asset Owners Disclosure Project (AODP).

The not-for-profit campaign group has for the fourth time produced its Global Climate 500 Index, which ranks institutional investors on how well they manage climate risk.

The scoring is on a letter-based system, from AAA to C and then D and X, the latter two categories being for what the AODP refers to as “bystanders” and “laggards”, respectively.

The 2016 edition of the index differs from previous years in that the AODP “no longer scores purely for transparency or commitments” but requires “evidence of tangible action”.

The world’s 500 biggest investors – pension funds, insurers, sovereign wealth funds, foundations and endowments – are evaluated on three main approaches to climate risk: risk management; engagement with investee companies and other “stakeholders throughout the investment chain”; and investment in low-carbon assets.

The 2016 index covers investors with $38trn (€33trn) of assets under management (AUM).

The assessment is done on the basis of direct disclosures and publicly available information.

The AODP said one-fifth (97) of the 500 investors were taking tangible action to mitigate climate change risk, and that another 157 “are taking the first steps”.

This corresponds to rankings from AAA to C, with the 157 figure capturing those rated D.

Nearly half of the investors in the index remain in the X category, with no evidence they are taking any action, according to the AODP.

The number of asset owners rated X grew from 232 to 246 since the 2015 index, with $14trn in AUM.

Top 12 Asset Owners
 Asset Owner2016 Rating2015 RatingAUM $mTypeCountry

1

The Environment Agency Pension Fund (EAPF)

AAA

AAA

3,956

Pension fund

UK

2

Local Government Super (LGS)

AAA

AAA

7,121

Pension fund

Australia

3

Fjärde AP-Fonden (AP4)

AAA

AAA

36,718

Pension fund

Sweden

4

Stichting Pensioenfonds ABP

AAA

AAA

391,400

Pension fund

Netherlands

5

New York State Common Retirement Fund (NYSCRF)

AAA

AAA

184,500

Pension fund

US

6

Pensionskassernes Administration A/S (PKA)

AAA

A

31,315

Pension fund

Denmark

7

AustralianSuper

AAA

AAA

71,575

Pension fund

Australia

8

Andra AP-Fonden (AP2)

AAA

AA

37,500

Pension fund

Sweden

9

California Public Employees Retirement System (CalPERS)

AAA

AAA

301,863

Pension fund

US

10=

Etablissement de retraite additionnelle de la Fonction Publique (ERAFP)

AAA

A

25,501

Pension fund

France

10=

Church Commissioners for England

AAA

N/A

10,443

Endowment

UK

12

First State Super

AAA

AA

39,349

Pension fund

Australia

Source: AODP

The most significant change was a 52% increase in asset owners falling into the CCC-C bucket, which the AODP describes as “indicating many more are acknowledging and more importantly taking action on managing climate risk in their portfolios”.

There was a 29% increase in asset owners rated A and above, which the AOPD referred to as leaders.

In the 2016 edition, 12 asset owners achieved the highest score, AAA, a 33% increase.

The highest-rated asset owner in the 2016 index is the UK’s Environment Agency Pension Fund (EAPF), followed by Australia’s Local Government Super and Sweden’s AP4, which had not made the cut for the AAA category last year.

The AODP noted that 26% of the EAPF’s portfolio was in low-carbon assets, the highest in the index.

Other new entrants in the AAA category are the Church Commissioners for England endowment fund and AustralianSuper.

Big jumps were made by Swedish pension fund AMF and the UK’s Greater Manchester Pension Fund, which each leapfrogged more than 100 of their peers to move from D to A.

The leader that fell the most places in the index was Norwegian insurance company KLP, ranked 19th in the 2016 index, down from second the previous year.

By country, Sweden is top of the index, followed by Norway and Australia.

France was fourth place, with three funds in the Top 20 for the first time. Government-controlled Caisse des Dépôts et Consignation and national pension reserve fund FRR jumped to an AA score, from CC and B, respectively.

Three of the seven countries that dominate the global pensions market failed to make the Top 10 in the AODP’s country index: Canada (11th), Switzerland (14th) and Japan (25th).

The 10 biggest X-rated funds include insurance companies and sovereign wealth funds in the Middle East and Asia and US pension fund Thrift Savings Plan.

AODP chief executive Julian Poulter said: “Climate-change risk is now a mainstream issue for institutional investors, and last year has seen many significantly step up their action to manage this.

“However, only a handful are protecting their portfolios from the very real danger of stranded assets, and it is shocking nearly half the world’s biggest investors are doing nothing at all to mitigate climate risk.” 

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