The second ever Global Climate Investment Index, which demonstrates how the world’s biggest investors are managing climate risk, reveals that many investment funds are setting investors up for massive losses due to their exposure to climate risks. At the same time, the Asset Owners Disclosure Project’s 2013/14 (AODP) shows that the world’s investment system is capable of driving the low carbon transition.
The Asset Owners Disclosure Project’s 2013/14 Index reveals that only 27 of a total of 460 investment funds that were rated worldwide are currently addressing climate risk at a responsible level. A massive 80% of Asset Owners are either D rated (abysmal) or X rated (doing nothing) and a further 540 funds did not disclose sufficient information to allow a rating.
“This is the second survey of the world’s largest retirement funds, insurance companies and sovereign wealth funds’ actions on managing the growing financial risks to those investments posed by climate change,” Julian Poulter, Executive Director of AODP said.
“While we can see some leaders emerging, many haven’t acknowldeged their dangerous and foolhardy addiction to investments riddled with climate risk, let alone checked themselves into rehab.”
The risk associated with climate change is based on the acceptance that carbon prices will rise over the long term and that the value of any high-carbon investments is then bound to crash. The share of stranded assets in a fund’s portfolio will then reduce the fund’s returns and ultimately result in lower levels of retirement savings for the individual stakeholder.
“A majority of the world’s investment industry are clearly acting contrary to the interests of those whose money they represent – this is an outrageous situation. It must be remembered that much of the money being held by these organisations is the product of workers’ lifelong savings,” Sharan Burrow, AODP board member and General Secretary of the International Trade Union Confederation said.
Two European pension funds are among the 1% that are awarded a AAA rating: the UK’s Environment Agency Active Pension Fund and Dutch pension fund Stichting Pensioenfonds Zorg en Welzijn. Eight further European funds have been rated as A or AA.
“What is clear is that the world has an investment system capable of driving the low carbon transition – If all the funds we surveyed had a triple AAA rating, we would be well advanced on meeting the global climate challenge upon us,” Julian Poulter, Executive Director of AODP said.
The index was built following information requests to the world’s 1000 largest asset owners including over 800 pension funds, 80 insurance companies, 50 sovereign wealth funds and 30 foundations/endowments. Together, they manage more than US$70 trillion.
The survey again focused on five main categories – transparency, risk management, investment chain alignment, active ownership and low carbon investment. It includes asset owners from 63 countries, in all regions of the world.
“The coming year will see the industry smoked out of its fiduciary duty bunker to prove to members that it is actively addressing this calamitous systemic risk“ John Hewson, AODP Chair said.
“It is extremely telling that there are only 5 funds, or 1% rated AAA or higher out of the 460 rated and that there are so many X rated funds in the Index,” Hewson said.
The Global Climate Investment Index can be accessed here: www.AODProject.Net