Investors urged to make good on climate change promises

Report calls on institutional investors to back up environmental commitments with formal processes for climate change investing

Pension funds and institutional investors may be increasingly aware that climate change issues should be a factor in investment decisions, but not enough is being done to ensure climate change risks and opportunities are formally assessed as part of decision-making processes.

That is the conclusion of the first annual report from the Institutional Investors Group on Climate Change (IIGCC), a group of 47 European investors with around €4tn assets under management, which argues that while investors are beginning to exploit climate change opportunities they are tending to do so on an informal ad hoc basis.

The report assesses the performance last year of the 21 signatories to the IIGCC's Investor Statement on Climate Change – including Schroders, BBC Pension Trust, BNP Paribas Asset Management and Co-operative Investments – against their commitment to increase focus on climate change.

It found that the vast majority of firms had made good on their commitment, with all asset manager signatories claiming to now assess regulatory risks arising from climate change when making investment decisions and more than 80 per cent of asset owners and pension funds claiming they encourage their asset managers to exercise their voting rights on climate change issues.

However, the study also revealed that relatively few firms have put in place formal processes and policies to ensure their new commitment to encouraging environmentally sustainable activities across their investment portfolio is followed.

"Only a couple of pension funds have put in place measures to ensure they clearly measure their asset managers' performance against climate change metrics and ensure they are integrating climate change issues into their investment decision making," said IIGCC programme director Stephanie Pfeifer. "The signatories to the statement tend to be leaders in this field but there is still a need for a more formal approach to climate change investment."

She added that pension funds in particular should be taking action to ensure their good intentions regarding climate change are realised.

"The pension funds drive a lot of the demand for asset managers and as such if they start to judge those asset managers based on their understanding of climate change risks and opportunities, then we will see major improvements," she explained.

The report also urged IIGCC members to use their influence to demand greater action from government to tackle climate change.

"A lot of the work done to assess climate change risks and opportunities is being hampered by the lack of clarity about the policy framework investors will have to work in post 2012," said Pfeifer. "Investors should engage with governments to make it plain they need greater clarity."