July 25, 2012 5:50 pm

Investors react to climate change risk

Climate change continues to be viewed as a material risk by institutional investors prompting many to change their investment strategy, according to the second global investor survey on climate change.

The survey, conducted by Mercer, the consultancy, examined asset owners and managers who collectively manage more than $12tn. It showed that in 2011 every asset manager assessed climate risk and opportunities and that over half (57 per cent) of asset owners conducted climate risk assessments. Over a quarter of owners reported making changes to their investment strategy based on their findings.

The proportion of asset owners that reported making reference to climate risk in their investment policies increased from 57 per cent in 2010 to 67 per cent in 2011. However, it was still much lower than the 78 per cent of asset managers who made reference to climate risk in their investment policies.

“It is important,” noted Mercer, “that asset owners establish clear policies as part of the process of setting expectations for their managers.”

While European and Australian investors continued to lead their counterparts in North America with respect to engagement on climate change issues, many North American investors reported undertaking direct company engagement on climate change issues through shareholder resolutions.

“This summer’s extreme drought conditions, which are causing huge economic ripples across the US economy, are the latest example of why investors should be making climate change a core consideration in their decision-making,” said Christopher Davis, director of investor programmes at Ceres, the Boston-based sustainability leadership group that coordinates the North American Investor Network on Climate Risk (INCR).

The report said respondents were taking stronger and more concrete steps to address the challenge of climate change. It revealed they were also increasingly monitoring climate risk in alternative asset classes such as real estate and infrastructure.

The survey is the second Mercer has carried out on behalf of the European Institutional Investors Group on Climate Change (IIGCC), the INCR and the Australia/New Zealand Investor Group on Climate Change (IGCC). It surveyed 42 asset owners and 51 asset managers.

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