The changing climate for asset manager selection

CO2 cloudsA growing number of institutional investors across the world say their choice of asset manager is influenced by climate change concerns.

The proportion of investors who look for asset managers to integrate climate change considerations in investment processes has risen to 69% from 43% a year earlier, a survey of asset owners and asset managers with $14 trillion (€11 trillion) of assets found.

Climate change groups representing institutional investors from four continents commissioned a survey of 37 asset owners and 47 asset managers and found, overall, that climate change is taken more seriously in planning and investment decisions.

Eighty-three per cent of asset owners consider whether asset managers integrate climate change concerns into investment processes, though not all let this affect selection.

The survey, conducted by the investment consultancy Mercer, found that a majority - 56% - of asset owners said they had conducted formal or informal climate risk assessments of their portfolios and a quarter had made changes to their investment strategy or decision making based on such assessments.

Yet there remains a lack of clarity about guidelines for climate risks, with less than a quarter of asset owners having set clear expectations of their asset managers on climate change in their investment management agreements.

“While members of the investor networks surveyed continue to show a strong commitment to addressing climate change in their investment activities, translating that commitment into investment decisions that reduce climate risks to portfolios and leverage climate-related investment opportunities remains a challenge,” says the report, which was published by an association of climate change investor groups.

Among the industry participants to have set concrete guidelines for climate risk is PGGM, a Dutch asset manager and consultant that serves pension funds.

In 2012, the company developed a benchmark that ranks its €40 billion of listed equities by a set of environmental, social and governance (ESG) criteria. Companies that score in the bottom 10% by these criteria are either sold immediately or put on a watch list, depending on the size of PGGM’s stake.

The index is designed to provide the same risk-return profile as the FTSE All-World benchmark while giving the asset manager a way to control ESG risks in its passive equity exposure.

The report was jointly published by the European Institutional Investors Group on Climate Change, the North American Investor Network on Climate Risk, the Australia/New Zealand Investor Group on Climate Change and the Asia Investor Group on Climate Change.

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