Awareness of climate risk and its impact on the investment world is rising rapidly, but there are a number of challenges confronting asset managers and fund boards – from the implementation of a climate risk and governance framework to the availability of the tools and skills needed to monitor and manage climate risk.
Climate risk awareness may be rising but large gaps remain in how these risks should be measured, monitored and managed.
When asked for the main drivers of future development of climate-related strategies (Q4), it is not surprising that ‘regulatory requirements’ was the most cited factor (30%), followed by changing investor preferences (24%).
It is also useful to compare the priorities for integrating climate risk into firms’ strategic thinking (Q9) with the drivers for climate change (Q4). The two clearest answers for Q9 are investment decision-making (38%), and integrating operational risk management (36%), which suggests that awareness of risks still has some way to go.
People will also play a critical role, especially those with expertise and/or experience in climate-related work. As Q13 suggests, the industry could be facing a potential skills shortage, as cited by 72% of respondents.
As mentioned, data is critically important in the ESG world, not just for reporting but also for due diligence, risk management and performance tracking and benchmarking.
The survey asks if firms are planning to provide reporting based on TCFD recommendations (Q19). Only one in five (19%) are already providing this reporting, while just under a quarter (24.5%) definitely plan to.
The survey asked where the strongest demand for climate-related products lies with investors (Q23). The clear answer was for sustainable equity funds (30%) which was cited by twice as many respondents as the next most popular option – existing strategies that have a greater climate focus via exclusion (14%).
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