A newly released survey of the world’s largest retirement funds, insurance companies and sovereign wealth funds’ has found the industry’s overall management of climate risk to be vastly inadequate, with many funds lacking any form of climate policy, and many more failing to adjust their investment decisions as a result of climate change.
“This first survey of the of the world’s 1,000 largest retirement funds, insurance companies and sovereign wealth funds’ …paints a disturbing overall picture of greenwash and reckless mismanagement but with some signs of progress,” said Dr John Hewson, chairman of the independent not-for-profit organisation, Asset Owners Disclosure Project, which on Tuesday released the first ever global climate investment index, based on its findings.
“With around $60 trillion under management the investment decisions made by these investors will be critical to a safe climate and our future prosperity. The survey found many funds didn’t even have a climate policy and many that did hadn’t changed investment decisions as a result.”
Australian funds, however, were found to rank relatively well, with six among the top 10 funds, Local Government Super topping the list and being one of only two AAA rated funds in the world. The massive $80 billion Future Fund, however, did not respond to AODP’s request for information, citing “inadequate resources.”
The other AAA rated fund was South Africa’s Government Employees Pension Fund (GEPF), which the survey found was the only fund to have calculated its exposure to fossil fuel reserves via the balance sheets of its investee companies – a measure that afforded it a second-place ranking on the AODP Climate Index.
Julian Poulter, AODP executive director – and business director of The Climate Institute, which has been conducting similar surveys of super groups in Australia since 2008, and was a major playing in setting up the AODP – said the report revealed “a crisis of transparency,” with 91 funds having absolutely no public information available.
The index was built on information gathered after requests were sent to the world’s 1,000 largest asset owners, including over 800 pension funds, 80 insurance companies, 50 sovereign wealth funds and 50 foundations/endowments.
The survey focused on five main categories – transparency, risk management, investment chain alignment, active ownership and low carbon investment. It includes asset owners from 63 countries, in all regions of the world.
“The main conclusion here is that not all funds are created equal,” Poulter said in a conference call with journalists on Tuesday afternoon. But “with only two AAA funds, it’s fair to say the industry is in pretty dire straits when it comes to climate risk.”
Poulter said that while there was “a great deal of intent” about managing long-term investment risks – of which climate change was by far the biggest, he said – there was not a great deal of action, with many funds failing to take “active ownership” of their climate-exposed assets.
“We think that climate change …(could) impact whether these funds have the ability to meet their liabilities in the long-term,” he said. “(They) must accept there will be some sort of low-carbon economy tipping point that will resemble the sub-prime crisis.”
“How they manage that rapid repricing event will determine their ability to meet their long-term liabilities,” he said. “Nobody will be able to stock-pick their way out of climate change.”