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More asset owners consider climate change in manager selection – Mercer report

But mandates rarely awarded on climate considerations

A majority of asset owners (78%) currently consider climate change integration in selecting asset managers, though mandates are rarely awarded solely on it as yet, according to a new study by consulting firm Mercer for three institutional investor networks on climate change.

The report, the second global survey of investment practices coordinated by the three groups, found that climate issues are increasingly being included as criteria in Requests for Proposals (RFPs) and due diligence processes. But they are as yet rarely included in investment management agreements between asset owners and their fund managers.

In addition, asset owners are increasingly focusing on monitoring their existing managers on climate issues – in fact 53% of owners do this. But less than 18% of them have set clear climate change expectations for their managers.

The report – The Global Investor Survey on Climate Change – was commissioned by the North American Investor Network on Climate Risk (INCR), the European Institutional Investors Group on Climate Change (IIGCC) and the Australia/New Zealand Investor Group on Climate Change (IGCC).

It is based on a survey of 42 asset owners and 51 asset managers with combined assets of over $12trn.

It found that asset owners continue to allocate to themed investment strategies such as clean energy,

energy efficiency and sustainable timber. And there was evidence of growing interest amongst larger funds in low carbon passive strategies.More than 60% of both asset managers and owners invest in climate solutions; the most common asset classes are developed market equity, private equity and infrastructure.

The report includes case studies of how leading investors are integrating climate change considerations.

It looks at: AustralianSuper, the Environment Agency Pension Fund, BT Pension Scheme, CalPERS, the New York State Comptroller’s Office, Local Government Super, Pax World, the Central Finance Board of the Methodist Church, the London Pensions Fund Authority and Australia’s HESTA. It also looks at asset managers such as BlackRock and Al Gore’s Generation.

“While it’s encouraging that more investors are concerned about the risks of climate change, many of them could be doing more to protect their clients and portfolios from those risks,” said Christopher Davis, director of Investor Programs at Ceres, the sustainability coalition that coordinates the INCR.

The survey shows that 83% of asset owners and 77% of asset managers view climate change as a material risk or opportunity in their portfolios. A similar number referenced climate risk in their investment policies.

The investor groups said that policy frameworks that stimulate low-carbon investment and provide investors with the tools to take further action will remain critical.

To date, the report states, 26% of asset owners have made changes to their investment strategy or investment decision-making as a result of climate risk assessments. “Whilst this may seem low, the message is a positive one given the continued uncertainty around global climate policy negotiations.”