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June 09, 2010
Institutional Investors Group on Climate Change Publishes Third Annual Investor Statement on Climate Change
    by Robert Kropp

The European-based forum for collaboration on climate change reports increased attention to climate change by investors, but find that few integrate climate change into Investment Manager Agreements.

The Institutional Investors Group on Climate Change (IIGCC), a forum for collaboration on climate change for European investors whose more than 50 members represent around $6 trillion in assets under management, recently issued the Investor Statement on Climate Change Report 2009, the organization’s third annual report.

Twenty-six signatories to the IIGCC Investor Statement on Climate Change—14 asset owners and 12 asset managers, representing $3.84 trillion in assets—responded to the survey conducted by
Mercer for the report. Eighty percent of respondents now reference climate change in their policy statements, and 60% ask climate change-related questions of potential managers, up from 30% in 2007. However, less than 20% report that they integrate climate change issues into Investment Manager Agreements.

In terms of asset classes, equity and emerging market equity investors, as well as investors in real estate, most often consider climate change in their investment decision-making. Investor focus on climate change continues to lag among fixed income and hedge funds.

Regulatory changes was the climate change issue most often considered by investors, who cited the
European Union Greenhouse Gas (GHG) Emission Trading System (EU ETS) , a mandatory cap-and-trade scheme which since 2005 has allocated emission allowances to European companies, as the driver most frequently considered in investment analysis.

According to the report, “Investors are less likely to take account of climate change issues when policy does not make the issue material, when there are uncertainties surrounding climate change policy and when the long-term nature of many physical climate change impacts means that they are outside current investment horizons.”

Engagement with corporations on climate change issues is on the increase, as 80% of respondents reported doing so. While monitoring through private channels remains the most popular means of engagement for European investors, an increase in collaborative engagement accounted for most of the increase in engagement reported by respondents in 2009.

Collaborative initiatives in which almost all members of IIGCC participate include the
Carbon Disclosure Project (CDP) and the United Nations Principles for Responsible Investment (PRI).

The issues most frequently addressed through engagement were improved corporate reporting and disclosure of climate change issues, the integration of climate change into product design and business operations, and the integration of climate change issues into business strategy.

On the basis of its survey, the IIGCC provided a number of recommendations for the integration of climate change risks and opportunities into investment analysis. It is essential, the report found, that investors intensify their dialogue with policymakers, “to ensure that the right policy frameworks are in place at national, regional and international levels.”

Climate change research must be improved as well, according to the report, “to overcome some of the gaps in data provision which is hampering engagement with companies and investment analysis.”

Finally, investors must continue to call for improved reporting and disclosure by corporations on issues relating to climate change.


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