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August 23, 2013
Investors More Comfortable Assessing Climate Change Risks than Opportunities
    by Robert Kropp

In its third annual survey, the Global Investor Coalition on Climate Change reports that assessing climate risk has become commonplace among institutional investors, but government inaction and other barriers continue to hinder a transition to low carbon investment.

The Global Investor Coalition on Climate Change (GIC) recently published its third annual Investor Survey on Climate Change, to which 84 asset owners and managers representing more than $14 trillion responded.

The coalition consists of the US-based Investor Network on Climate Risk (INCR), the European Institutional Investors Group on Climate Change (IIGCC), the Australia/New Zealand Investor Group on Climate Change (IGCC), and the Asia Investor Group on Climate Change (AIGCC). Earlier this year, the Coalition published its Action Plan on Climate Change, which describes the annual survey as seeking to facilitate transparency, integrate climate change into investment advice, and support research on investment for a low carbon economy.

The recently leaked Fifth Assessment Report (AR5) of the Intergovernmental Panel on Climate Change (IPCC) underscores the extreme urgency of dealing effectively with climate change, noting that many of the effects of climate change are occurring more quickly than was previously thought. Yet, as the Coalition members state in the foreword to the survey, “the flow of capital towards low-carbon solutions and away from carbon-intensive technologies risks being undermined by inadequate, inconsistent and halting policy efforts by world governments, especially in major greenhouse gas emitting nations.”

“The need for more decisive action by investors, by businesses and by policymakers is increasingly clear,” the survey continues. However, “Institutional capital can and will flow at scale into clean energy and low carbon solutions only with adequate policy support that provides the necessary degree of investment certainty.”

What precisely is “the necessary degree of investment certainty” required by institutional investors before they shift a significant percentage of their investment dollars to low-carbon solutions? Assessment of the risks posed to portfolios has become commonplace, the survey reports, as “climate risk analysis in equity portfolios for example is performed by almost 100% of respondents and real estate and infrastructure portfolios are receiving increasing levels of attention.”

However, “institutional investors in large diverse markets continue to face challenges to diversifying away from emissions exposures when policy signals do not sufficiently support changes.” Because of such challenges investors have relied on increasingly sophisticated methods of corporate engagement, and shareowner resolutions calling for corporate sustainability reporting and greenhouse gas (GHG) reduction targets have attracted the support of growing numbers of mainstream investors.

Yet more than half of respondents report some low carbon investments, mostly in equities, although “few respondents were able to quantify the value of low carbon exposure via equity investments with confidence.”

For years now, even as the effects of climate change have become increasingly visible, a stalemate of sorts has persisted between government inaction and the caution of institutional investors. Chris Davis,
the Director of Investor Programs at Ceres, said of the survey results, “Much work remains to be done, especially in the US, to fully integrate climate risk into investment decision-making, and to advance public policies that will accelerate more low carbon investment.”

Perhaps the most laudable aspect of the GIC Action Plan is its determination to create a Global Registry of Low Carbon Investments, which the Coalition believes will help facilitate low carbon investments by institutional investors. The Action Plan also refers to collaboration with the Climate Policy Initiative (CPI), which reported earlier this year that government polices and institutional constraints on liquidity and diversification constitute significant barriers to increased investment in renewable energy technologies by institutions.


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