GLOBAL - Norway's Government Pension Fund has signed up to a project led by Mercer to measure the impact of climate change on strategic asset allocation. They are looking for other global institutional investors to support the research.
The ministry of finance expects to conclude the study, along with an assessment of active management, by early 2010.
Danyelle Guyatt, principal with Mercer's responsible investment team, said the project will be led by the firm's responsible investment and financial strategy groups, together with other investors, a climate change research specialist and 1-2 industry bodies.
The two-part report will consist of a public report aimed at disseminating knowledge and a customised report for each asset owner that commits to the project, customised to their ALM position and benchmarking them against the other research partners.
Guyatt said the project would "develop scenarios that focus on the degree to which the scientific evidence improves or deteriorates and the degree to which government policies are on track or falling behind."
It aims to produce a qualitative framework to chart risks and opportunities by region and asset class. This input can be used as an overlay to strategic asset allocation. Quantitative analysis will chart the sensitivity of regions and asset classes to various scenarios
Speaking in Oslo today, Kristin Halvorsen, Norway's finance minister, noted that traditional strategic asset allocation approaches have not usually taken climate change into account.
"The project is aimed at assessing the impact of climate change on the financial markets as well as the implications for strategic asset allocation," she said. "More specifically, the project aims to develop a methodology for constructing scenario analysis and to identify risks to long-term investments across asset classes and geographical locations."
Halvorsen continued: "This is an ambitious and complex task, which is more efficiently undertaken in collaboration with others. I will therefore encourage large institutional investors and the industry worldwide to join forces in this project. Together we need to develop tools and practical thinking that is required to understand the financial implications of financial change."
The finance ministry is also conducting a study into the use of active management strategies.
"The strategy of active management was not sufficiently anchored with the broader public. In order to address this, we will in the coming year have a thorough assessment of whether and what kind of active management we would like to have. This assessment, held by public consultation, will provide the basis of a robust strategy that can stand the test of time," the minister added.
"The fund had very poor investment returns last year but there is still broad political support for the fund's long-term investment strategy," she emphasised.
Martin Skancke, director general at the finance ministry, told IPE that both projects were expected to be concluded by next year.
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