More than 1,000 investors worth US$70 trillion have been challenged to show how they are managing climate risk
Major funds typically put 50-60% of their money in high carbon projects such as oil exploration
(Pic: BP)
By Megan Darby
Pension funds, insurance companies and sovereign wealth funds manage vast sums of money.
They can put it into oil exploration or windfarms, airports or railways. Those decisions have consequences for their financial sustainability, as well as for the climate.
When 460 of these corporations were asked last year to reveal their exposure to climate risk, 80% showed little or no evidence of action on the issue.
But following a plethora of investor-led pledges at Ban Ki-moon’s climate summit in New York, the Asset Owners Disclosure Project (AODP) is upping the pressure.
Today it asked more than 1,000 major funds worth US$70 trillion to reveal their exposure to high carbon assets.
Julian Poulter, CEO of AODP, said: “This is the moment for asset owners to prove to beneficiaries and stakeholders that they are serious about the commitments made at the UN Summit.
“The gap between investor leaders and laggards on climate action is growing rapidly and the world needs to know how large investors are pricing portfolio risk.”
Low carbon shift
Investment funds typically have 50-60% of their money in high carbon assets and less than 2% in low carbon assets, according to AODP.
Last week’s UN summit showed some appetite to change that, in response to the challenge of climate change.
Investors who manage US$24 trillion backed moves to put a price on carbon pollution worldwide. Funds handling US$2 trillion promised to support an expansion of the green bond market.
And a smaller group, worth US$500 billion, committed to revealing the carbon footprint of their investments, under the Montreal Pledge, launched on September 25.
They noted a duty, as institutional investors, to act in the long-term interests of their beneficiaries –pension holders, insurance buyers and citizens.
To do that, they must take into account the risks associated with climate change.
World leaders last Tuesday showed their support for a treaty to limit global temperature rise to 2C above pre-industrial levels.
That means curbing greenhouse gas emissions, which in turn means limiting demand for the fossil fuels that release them when burned for energy.
Analysis: Carbon bubble goes mainstream in New York
Energy stocks have traditionally been seen as low risk, but analysis by the Carbon Tracker Initiative suggests they are systemically overvalued, creating a “carbon bubble”.
Some 80% of known fossil fuel reserves cannot be safely burned, under this analysis, which will leave coal, oil and gas companies with worthless assets.
There are growing movements to encourage investors to divest from fossil fuels or steer clear of the highest carbon projects.
“The pressure to either divest, reduce fossil fuel investment or strongly engage is greater than ever and any fund who can’t demonstrate action risks intense scrutiny from all stakeholders,” said Poulter.
The AODP’s survey covers asset owners from 63 countries. It looks at five categories: transparency, risk management, investment chain alignment, active ownership and low carbon investment.
When the results are published, the AODP aims to show up those who do not back up talk with action.
Poulter said: “We now have to expose the green-washers who enjoy signing statements but who have no intention of acting decisively.”