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Managing climate risks: a glass half-full?

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(c) Kalyan Chakravarthy

Almost half of the world’s largest investors are not managing climate risks, finds a new rating by the Asset Owners Disclosure Project (AODP).  This, after five massive assessments since 1990 of state-of-the-art climate science, and twenty-one international conferences to forge a global climate agreement. One might think that climate change is high on every decision-makers agenda? Well, think again. 

AODP Global Climate 500 Index

The Asset Owners Disclosure Project (AODP) is an independent global not-for-profit organisation that recognises the specific financial risk attributes of climate change. The AODP Global Climate 500 Index rates the world’s 500 biggest asset owners – pension funds, insurers, sovereign wealth funds, foundations and endowments who collectively manage $ 38 trillion – on their success at managing climate risk within their portfolios, based on direct disclosures and publicly available information. The AODP 500 Index was released for the fourth time on May 2, 2016.

Magnus 1

Are we winning or losing?

Depending on your mood at the moment, you could see the glass as half-full: 51 per cent of the rated asset owners are now taking some action in managing investment climate risk. Furthermore, 10 per cent of them now calculate their portfolio carbon emissions – up from 34 to 51 between 2015 and 2016.

However, the glass is strikingly half-empty, too. 246 funds managing $14 trillion are X rated, i.e. with no evidence they are taking any action. This is an increase of 6 per cent from 2015. The fact that only 0.4 per cent ($138 bn) of the AODP500s assets under management in 2015 are reported as low-carbon investments could lead you to think that the glass isn’t even half-empty, but more or less empty…

Magnus 2

In a time where fossil-intensive energy companies are filing for bankruptcy, it should worry beneficiaries and regulators that only 5 per cent of asset owners disclose a measurement of the impact stranded asset scenarios may have on their investments.

New initiatives may change how we are managing climate risks

Hopefully, this negligence of asset value as well as of our planet is soon about to change. Initiatives from key players such as the Financial Stability Board and the UN Principles for Responsible Investment are aiming for enhanced disclosure of climate-related risks, and to drive investors to make material sustainability factors such as climate change an integrated part of their fiduciary duty.

After all, it’s fundamental: there will be no business on a dead planet, and become harder to make ends meet for all things living on our way there. The sooner we figure out how to align our investments with scientific recommendations for a safe and prosperous future, the better are our chances to live well within the capacity of this one planet of ours.

Magnus Emfel is a Senior Advisor on Sustainable Economy for WWF-Sweden. He is based in Stockholm. Magnus.Emfel@wwf.se

Photograph by Kalyan Chakravarthy

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51% of asset owners in #AODP500 taking some action in managing investment climate risk http://bit.ly/1XPECMb

This is worrying: only 5% of asset owners disclose measurement of impact stranded asset scenarios have on their investments #AODP500 http://bit.ly/1XPECMb

It is fundamental: there will be no business on a dead planet #AODP500 http://bit.ly/1XPECMb

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