As institutional investors spend an increasing amount of time thinking about environmental, social and governance risks and strategies for dealing with them, the issue of climate change continues to push its way to the top of the list.
According to the U.S. SIF Foundation’s biennial Report on U.S. Sustainable, Responsible and Impact Investing Trends, released late last year, “climate change/carbon” was the top ESG criterion for money managers representing $3 trillion in assets and the third-biggest issue for institutional investors with a collective $2.24 trillion in assets.
Climate change made a dramatic jump to first from third place in the latest Extreme Risks report from Willis Towers Watson Investments’ Thinking Ahead Institute. “We now think it’s more likely, and the climate science is also worse,” said Tim Hodgson, London-based head of the Thinking Ahead Institute.
But that may be changing.
“Climate change is clearly on the minds of institutional investors all around the world, for a variety of reasons,” said Amit Bouri, CEO of the non-profit Global Impact Investing Network in New York. “I think fundamentally the driver of interest among institutional investors is the recognition that if you are seeking long-term financial stability, you have to think about climate change. There is a growing recognition that it is a source of risk, and if you’re paying attention to financial performance, you need to pay attention to climate risk.”
Leadership on climate risk and other sustainable investing issues from the largest institutional investors, such as Japan’s ¥159.2 trillion ($1.5 trillion) Government Pension Investment Fund, Tokyo, and Norway’s 9.16 trillion Norwegian kroner ($1 trillion) Government Pension Fund Global, Olso, “is rippling through the markets,” Mr. Bouri said.
“We see U.S. pension funds and insurance companies ramping up significantly. There is a lot activity to look at ESG impacts in their portfolio. They want to make sure they are not just managing risk, but also putting their money to work where they see opportunities,” he said.