GLOBAL - US investors continue to lag behind their counterparts in Europe, Australia and New Zealand when it comes to climate change, according to a joint report by the Institutional Investors Group on Climate Change (IIGCC), the North American Investor Network on Climate Risk (INCR) and the Australia/New Zealand Investor Group on Climate Change (IGCC).
The report shows asset owners and asset managers understand the importance of addressing climate change through their investment practices and are making significant progress in a variety of areas.
The majority of investors view climate change as a material investment risk/opportunity, and almost all respondents report on their climate change related activities.
However, as a result of stronger climate policy in the EU, specifically in relation to carbon pricing and renewable energy policy, there is greater integration of climate change across the board from European investors.
In Australia, the lack of a carbon-pricing system and a less certain regulatory environment is a concern, although there is an increasing focus from investors on policy advocacy and addressing the physical impacts of climate change.
In the US, the lack of coherent climate policy means investors are focused on engaging with companies, particularly with regards to improving disclosure, rather than integrating climate change into valuations or actively encouraging investment managers to do so.
Mindy Lubber, INCR director and president of sustainability networking organisation Ceres, said: "US investors have strongly advocated for robust climate policies, and they have succeeded in getting the US Securities and Exchange Commission to issue groundbreaking climate risk disclosure requirements for companies.
"But their climate-related investment practices, in most cases, trail their international peers, and this will be a key focus for INCR in the coming months."
In addition to climate policy, demand from pension funds will remain a key driver for changes in the investment practices of asset managers. While more than three-quarters of asset owners - 77% - consider whether potential fund managers integrate climate change in their investment processes, there is still little in the way of contractual requirements, with only 18% of asset owners having developed a formal process to assess prospective managers' climate efforts.
Ole Beier Sørensen, IIGCC chairman and head of research and strategy at Danish pension fund ATP, said: "To address the risks and opportunities arising from climate change, investors must have the tools to take meaningful action.
"More than anything, investors need stable and transparent policy frameworks that provide clarity and certainty. A number of countries and regions are moving in the right direction, but there is still a long way to go.
"Policymakers need to remove barriers to low carbon investment, and they need to create a relatively predictable price on carbon."
The report - conducted by global consultancy Mercer - is based on survey responses from 44 asset owners and 46 asset managers, with collective assets totalling more than $12trn (€8.4trn).
The full report can be found here.