AODP: SWFs and Asian insurers among worst climate change risk disclosers; top ranking funds named

Best and worst reporters could come under more scrutiny.

Some of the world’s largest sovereign institutional investors, including oil-backed state funds and insurers, have been named among the worst at managing climate change risk in their portfolios in this year’s Asset Owners Disclosure Project (AODP)’s Global Climate Index, which ranks asset owners on their responses.
The inaction comes despite many of their respective governments ratifying the Paris climate deal last month and the prospect that investors will come under pressure next year to report on climate change action by the Financial Stability Board (FSB)’s Task Force on Climate-related Financial Disclosures (TFCD).
Though the AODP reports that the number of asset owners earning a triple-A rating for recognising and combating climate risk in their holdings has risen, nearly half of the 500 asset owners indexed have displayed ‘no evidence that they are taking any action,’ it says.
Both the number of ‘laggards’ that the AODP picks out and the assets they manage have increased since 2015. AODP handed out x-ratings – meaning no action – for 246 institutions managing $14 trillion in assets, up 6 percent from last year. AODP defines laggards as funds that have taken no tangible action against climate change risk in their portfolios, rather than just committing to change or upholding transparency.
The 10 largest funds in this bottom category, worth a total of $5 trillion, comprise large Asian insurers and sovereign wealth funds from oil-producing nations, including the UAE, Kuwait and China’s SAFE Investment Company. The governments of the three countries ratified, alongside a total of 175 countries, the Paris COP21 Agreement on climate change during a ceremony in New York City in April. Christiana Figueres, Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC) says asset owners should “pick up the pace and ramp up their ambition in respect to a low carbon transition.”The AODP indexed the institutions in question with a 41-question survey which explores three core areas: how asset owners are engaging on climate change issues with stakeholders, how effectively they are measuring and monitoring climate risk in their portfolios, and whether they have invested in low-carbon assets. The UK’s $4 billion Environment Agency Pension Fund and Australia’s $7.1 billion Local Government Super topped all three categories between them, with the former taking top spot in the overall index.
AP2, the Second Swedish National Pension Fund, is one of many taking the ranking seriously, announcing its triple-A rating and eighth ranking in a press release. It also points out that Swedish asset owners are, according to the index, taking more action to manage climate risk than those from any other country, followed closely by Norway and Australia. ABP, the Dutch pension giant, has also been touting its fourth place in the AODP ranking.
RI reported in April that the high-level climate disclosure taskforce headed by former New York Mayor Michael Bloomberg will develop recommendations about how institutional investors and asset managers should report their exposure to climate change risks. The Task Force on Climate-related Financial Disclosures (TFCD) was set up late last year by the Financial Stability Board (FSB) at the initiative of Bank of England Governor Mark Carney, and is being pushed forward by the G20 group of countries.
It is not clear how much pressure such funds will be under once the TFCD reveals its recommendations for disclosures by institutional investors and asset managers, but it looks likely to have some regulatory impetus. Though the Michael Bloomberg-led initiative initially focused on corporates, the Task Force will now consider how its recommendations for voluntary disclosures can “be best integrated into” existing standards and best practices.
Link to the AODP ranking