Climate Change as an Investment Risk or Opportunity

Climate change is a material investment risk or opportunity and it has emerged as a strategic issue for asset owners and asset managers. The vast majority of investors now incorporate climate change into their risk assessments. This is the conclusion of a report, titled the Global Investor Survey on Climate Change, conducted by Mercer and commissioned by the Institutional Investors Group on Climate Change (IIGCC), the Investor Network on Climate Risk (INCR) and Investor Group on Climate Change (IGCC). This report clearly illustrates that climate change is increasingly a salient part of the investment practices of asset managers and asset owners.

Based on survey responses from 44 asset owners and 46 asset managers with collective assets totaling more than $12 trillion, the report found that 87 percent of asset managers and 98 percent of asset owners now incorporate climate change risk assessments into their investment processes.

Although we are seeing a strong trend across the board, the results of this study indicate that the US is lagging behind their counterparts in other parts of the world, notably Europe, Australia and New Zealand.

The increase in climate risk assessment is being driven by demand from institutional investors including pension funds. Over three quarters of asset owners (77%) want to see climate change considerations integrated into their investments.

Despite this interest there is still very little in terms of contractual requirements as only a small number of asset owners (18%) have developed a formal process to assess prospective managers’ climate efforts.

To properly address the risks and opportunities arising from climate change, investors need tools to help them make accurate comparative assessments. Investors need stable and transparent policy frameworks which provide clarity and certainty.

From a policy perspective, barriers to low carbon investment need to be removed and there is a need to create a relatively predictable price on carbon.