(January 8, 2013) – Institutional investments in infrastructure, real estate, and farmland are rising—unfortunately, so are sea levels.
As the world’s largest asset owners diversify away form equity and interest rate exposure with real assets, they take on the risks of an increasingly violent climate. So who is accounting for it, and who isn’t?
The Asset Owners Disclosure Project (AODP), a global non-profit organization, decided to find out. The group’s mission is to protect retirement assets from climate risk by investigating and spreading the word on industry best practice. The organization polled the world’s 1,000 largest pension, endowment/foundation, insurance, and sovereign funds on their transparency and approach to climate change. Taken together, the organizations surveyed manage over $60 trillion in assets.
“The survey paints a disturbing overall picture in terms of the majority failing to recognize the unique investment challenge of climate change and the dead end that the current ‘business as usual’ represents,” said Bob Litterman, an AODP board member and the former head of risk for Goldman Sachs in the United States. “Climate change will be recognized soon as the real threat that it represents not only to nature as we know it on earth, but also to humanity. Funds have yet to recognize that a tipping point has been reached.” In addition to the survey, AODP researchers dug through annual reports to rank over 300 funds by climate change capability. They found that the ability of funds to respond to and to build capacity around climate change is not affected by size. Indeed, the top-ranked Local Government Super from Australia has just over US$6 billion under management, while the funds included range from about $500 million to $1.4 trillion.
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Climate Change Capability: Overall Ranking
Unlike size, geography is highly correlated to climate change readiness. Six of out the top ten best prepared funds worldwide are Australian, while Middle Eastern oil funds all scored Ds or less. Out of 37 large funds located in the Middle East or Africa, 33 either tied for last place (224th) or did not provide enough information to be ranked. (It is worth noting that transparency is a prerequisite for a high ranking. Funds that failed to respond to the AODP’s survey or make public data available could not be ranked at all, and those giving partial disclosure were dinged on their transparency score.)
Funds in the Americas tended to rate the worst behind Middle Eastern/African asset owners, despite strong scores in shareholder activism. The Americas’ top ranked entrants were in fact Canadian: the British Columbia Investment Management Corporation and RBC Royal Bank’s pension fund both received AA ratings. The United States’ best showing was the New York State Common Retirement Fund, which came in third for the Americas region and fourteenth overall.
Regional Ranking: Middle East & Africa
(Charts courtesy of the AODP)
