04-27-2017, 02:36 PM
Apr 27, 2017 @ 09:00 AM 577
Trump Might Not Believe In The Risks Of Climate Change - But Investors Do And They Are Taking Action
https://www.forbes.com/sites/mikescott/2...28213daa13
Mike Scott , Contributor
I write about business, the environment, sustainability and investment
Opinions expressed by Forbes Contributors are their own.
![[Image: 960x0.jpg?fit=scale]](https://specials-images.forbesimg.com/imageserve/667952426/960x0.jpg?fit=scale)
Solar panels on a hillside in eastern China. (STR/AFP/Getty Images)
The 45th President of the United States might think climate change is a hoax invented by the Chinese, but there is a fair chance that the investors who put money into his hotels and casinos think it is rather more serious than that.
New research from the Asset Owners Disclosure Project (AODP) reveals that 60% of the world’s 500 biggest asset owners (AOs), representing assets under management of $27 trillion, now recognise the financial risks of climate change and the opportunities that are created by the transition to a low carbon economy. That figure, revealed in AODP’s fifth Global Climate Index, is not just startling in itself, but it is an 18% increase on the figure last year.
The research suggests that regardless of Trump's position, investors will continue to press for change because they do not want to see their returns harmed by climate-related issues – whether those are physical (such as extreme weather events and sea level rise), regulatory (such as the UK’s Climate Change Act and France’s new world-first law requiring investors to disclose climate risk) or global initiatives such as the Paris Agreement that commits governments to cutting emissions to keep average temperature rises below 2°C.
There has also been a proliferation of initiatives that highlight the risks to investors, including CDP’s Carbon Disclosure questionnaire, the Principles on Responsible Investment, the Task Force on Climate-Related Disclosures and Science-based Targets.
In addition, the companies in which investors might put their money are also acting on climate change, with many of the biggest corporations – such as Apple; BMW; AB Inbev, the world’s largest brewer; General Motors; and Walmart – committing to source all their electricity from renewable sources.
This trend and ongoing technological advances are making renewable energy cheaper than ever before, as illustrated by the fact that clean energy capacity rose by 9% in 2016, but the amount of dollars invested was 17% lower than the year before. The price of solar power fell 83% from 2008 to 2016 and the price of wind power dropped by 73%. A growing number of projects are being developed without subsidies, even in sectors thought to be still expensive such as offshore wind.
And despite President Trump’s pledge that he will rescue the coal industry, the industry’s glory days are behind it, in the industrialized world at least. In April, for the first time since the Industrial Revolution, the UK used no coal to produce electricity while in the US, the Institute for Energy Economics and Financial Analysis (IEEFA) revealed that 70% of coal purchased in the US in 2016 went to power plants that are due to close by the end of 2018. When even the Kentucky Coal Museum installs solar panels to save money, it is clear which way the wind is blowing.
The efficacy of clean energy sources will be further boosted by the advent of energy storage, whose costs are also plummeting – lithium-ion batteries are 73% cheaper than they were in 2010 and will be a further 75% cheaper by 2030, says Bloomberg New Energy Finance’s founder Michael Liebreich.
Michael Liebreich, chairman of the advisory board at Bloomberg New Energy Finance. Akio Kon/Bloomberg
Another factor is that there is more data available than ever before – on Bloomberg terminals, through indices from index providers such as MSCI and FTSE and through initiatives such as Carbon Tracker – illustrating both the risks of carbon-heavy investments becoming stranded assets and how to construct less carbon-intensive portfolios.
Nonetheless, there is still a significant amount of money being invested with no consideration of climate risks, with 68% of financial institutions in Germany, 67% in China and 63% in the US showing no evidence of taking any action on climate risk. By contrast, just 24% of investors from Canada, 26% in Japan and 29% in Switzerland were ignoring the issue.
AODP CEO Julian Poulter said: “The Paris Agreement sent a clear message of global commitment to tackle climate change. Institutional investors are responding by rapidly scaling up action to tackle climate risk and seize opportunities in financing the low carbon economy. This is recognised as a key issue by the Financial Stability Board and our Index enables asset owners and managers to report against the framework which will be recommended to the G20.”
But he added: “It is shocking that many pension funds and insurers are still ignoring climate risk and gambling with the savings and financial security of millions of people. As the number of these laggards falls, their exposure to market repricing grows significantly higher and a time may be approaching when it is too late to avoid portfolio losses.”
This year the index also looked at attitudes at the world’s top 50 asset managers (AMs), who invest asset owners’ money for them. They are taking the issue even more seriously, it seems, with just three firms (all from the US) ignoring the issue.
The report finds that although asset owners are making rapid progress, asset managers are ahead on a range of key activities:
90% of AMs incorporate climate change into their policy frameworks; 42% of AOs do this, almost twice as many as last year;
68% of AMs have staff focused on integrating climate risk into their investment; 18% of AOs have dedicated staff, a third more than last year);
20% of AMs calculate portfolio carbon emissions; 13% of AOs do this, up from 10% last year;
12% of AMs assess the risk of stranded assets in their portfolio; 6% of AOs do this, up from 5% last year.
Despite the progress in assessing climate risks, the index reveals that this has yet to be translated into investment in low carbon assets. “Across the Index, low carbon investment by asset owners has risen 68% to $203bn, but still represents only 0.5% of total assets under management,” Poulter said.
There is also a big geographical split, with Europe and Australia leading the way and North America and Asia lagging behind.
Europe is home to 20 of the 34 index leaders rated from AAA to A and no asset owners are ignoring climate risk in the Netherlands, Scandinavia or Ireland while only 5% of institutions in the UK and 3% in France are laggards. However, Germany is an outlier, with 68% of asset owners classed as laggards, thanks to 17 smaller funds with $382 billion of investments. Meanwhile, the six highest-rated asset managers are all European.
North America lags furthest behind, with asset owners averaging a D rating. The US is highly polarised: seven of its 183 asset owners (4%) are in the Leaders group but 115 are ignoring climate risk (63%, down only 4% from last year). However, in Canada the proportion of asset owners ignoring climate risk has nearly halved in a year, from 44% to 24%.
US asset managers account for 27 of the top 50 and manage $30.5trn, 70% of Index assets, but the average rating is also D. Blackrock, the world’s largest asset manager with $4,645bn of assets under management, and Goldman Sachs ($1,252bn AUM) are rated C, while Vanguard ($3,500bn AUM) and State Street ($2,245bn AUM) are among 18 rated D. The only asset managers in the entire top 50 ignoring climate risk are Fidelity Investments ($2,060bn AUM), Affiliated Managers Group ($611bn AUM) and New York Life Investment Management ($528bn AUM).
Across Asia the average asset owner rating is D, but there are signs of progress. A quarter (26%) of Japan’s funds are Laggards with over $1trn of investments, but this has more than halved from 58% a year ago. Six of China’s nine asset owners are Laggards controlling $2.6trn, a position at odds with the country’s leadership on green finance within the G20 and its ambitious plans to invest in renewables, suggesting that there may be significant action that is not being disclosed.
Australia and New Zealand rival Europe, with Australia’s $7bn Local Government Super topping the Global Climate 500 Index, one of six institutions in the Leaders group, and overall its 29 asset owners achieve an average B rating. One of New Zealand’s two funds is also a Leader. However, Macquarie, the sole Australian institution among the top 50 asset managers, rates D. This is a cause for concern, given that it has just agreed to acquire the UK’s Green Investment Bank, Poulter pointed out.
“Climate change is becoming a central part of risk management around the world, and will transcend short-term political setbacks such as moves by the Trump administration in the US to roll back action on climate change,” Poulter said. “Once investors adopt prudent risk management practices they will not unlearn them.”
Trump Might Not Believe In The Risks Of Climate Change - But Investors Do And They Are Taking Action
https://www.forbes.com/sites/mikescott/2...28213daa13
Mike Scott , Contributor
I write about business, the environment, sustainability and investment
Opinions expressed by Forbes Contributors are their own.
Solar panels on a hillside in eastern China. (STR/AFP/Getty Images)
The 45th President of the United States might think climate change is a hoax invented by the Chinese, but there is a fair chance that the investors who put money into his hotels and casinos think it is rather more serious than that.
New research from the Asset Owners Disclosure Project (AODP) reveals that 60% of the world’s 500 biggest asset owners (AOs), representing assets under management of $27 trillion, now recognise the financial risks of climate change and the opportunities that are created by the transition to a low carbon economy. That figure, revealed in AODP’s fifth Global Climate Index, is not just startling in itself, but it is an 18% increase on the figure last year.
The research suggests that regardless of Trump's position, investors will continue to press for change because they do not want to see their returns harmed by climate-related issues – whether those are physical (such as extreme weather events and sea level rise), regulatory (such as the UK’s Climate Change Act and France’s new world-first law requiring investors to disclose climate risk) or global initiatives such as the Paris Agreement that commits governments to cutting emissions to keep average temperature rises below 2°C.
There has also been a proliferation of initiatives that highlight the risks to investors, including CDP’s Carbon Disclosure questionnaire, the Principles on Responsible Investment, the Task Force on Climate-Related Disclosures and Science-based Targets.
In addition, the companies in which investors might put their money are also acting on climate change, with many of the biggest corporations – such as Apple; BMW; AB Inbev, the world’s largest brewer; General Motors; and Walmart – committing to source all their electricity from renewable sources.
This trend and ongoing technological advances are making renewable energy cheaper than ever before, as illustrated by the fact that clean energy capacity rose by 9% in 2016, but the amount of dollars invested was 17% lower than the year before. The price of solar power fell 83% from 2008 to 2016 and the price of wind power dropped by 73%. A growing number of projects are being developed without subsidies, even in sectors thought to be still expensive such as offshore wind.
And despite President Trump’s pledge that he will rescue the coal industry, the industry’s glory days are behind it, in the industrialized world at least. In April, for the first time since the Industrial Revolution, the UK used no coal to produce electricity while in the US, the Institute for Energy Economics and Financial Analysis (IEEFA) revealed that 70% of coal purchased in the US in 2016 went to power plants that are due to close by the end of 2018. When even the Kentucky Coal Museum installs solar panels to save money, it is clear which way the wind is blowing.
The efficacy of clean energy sources will be further boosted by the advent of energy storage, whose costs are also plummeting – lithium-ion batteries are 73% cheaper than they were in 2010 and will be a further 75% cheaper by 2030, says Bloomberg New Energy Finance’s founder Michael Liebreich.
Michael Liebreich, chairman of the advisory board at Bloomberg New Energy Finance. Akio Kon/Bloomberg
Another factor is that there is more data available than ever before – on Bloomberg terminals, through indices from index providers such as MSCI and FTSE and through initiatives such as Carbon Tracker – illustrating both the risks of carbon-heavy investments becoming stranded assets and how to construct less carbon-intensive portfolios.
Nonetheless, there is still a significant amount of money being invested with no consideration of climate risks, with 68% of financial institutions in Germany, 67% in China and 63% in the US showing no evidence of taking any action on climate risk. By contrast, just 24% of investors from Canada, 26% in Japan and 29% in Switzerland were ignoring the issue.
AODP CEO Julian Poulter said: “The Paris Agreement sent a clear message of global commitment to tackle climate change. Institutional investors are responding by rapidly scaling up action to tackle climate risk and seize opportunities in financing the low carbon economy. This is recognised as a key issue by the Financial Stability Board and our Index enables asset owners and managers to report against the framework which will be recommended to the G20.”
But he added: “It is shocking that many pension funds and insurers are still ignoring climate risk and gambling with the savings and financial security of millions of people. As the number of these laggards falls, their exposure to market repricing grows significantly higher and a time may be approaching when it is too late to avoid portfolio losses.”
This year the index also looked at attitudes at the world’s top 50 asset managers (AMs), who invest asset owners’ money for them. They are taking the issue even more seriously, it seems, with just three firms (all from the US) ignoring the issue.
The report finds that although asset owners are making rapid progress, asset managers are ahead on a range of key activities:
90% of AMs incorporate climate change into their policy frameworks; 42% of AOs do this, almost twice as many as last year;
68% of AMs have staff focused on integrating climate risk into their investment; 18% of AOs have dedicated staff, a third more than last year);
20% of AMs calculate portfolio carbon emissions; 13% of AOs do this, up from 10% last year;
12% of AMs assess the risk of stranded assets in their portfolio; 6% of AOs do this, up from 5% last year.
Despite the progress in assessing climate risks, the index reveals that this has yet to be translated into investment in low carbon assets. “Across the Index, low carbon investment by asset owners has risen 68% to $203bn, but still represents only 0.5% of total assets under management,” Poulter said.
There is also a big geographical split, with Europe and Australia leading the way and North America and Asia lagging behind.
Europe is home to 20 of the 34 index leaders rated from AAA to A and no asset owners are ignoring climate risk in the Netherlands, Scandinavia or Ireland while only 5% of institutions in the UK and 3% in France are laggards. However, Germany is an outlier, with 68% of asset owners classed as laggards, thanks to 17 smaller funds with $382 billion of investments. Meanwhile, the six highest-rated asset managers are all European.
North America lags furthest behind, with asset owners averaging a D rating. The US is highly polarised: seven of its 183 asset owners (4%) are in the Leaders group but 115 are ignoring climate risk (63%, down only 4% from last year). However, in Canada the proportion of asset owners ignoring climate risk has nearly halved in a year, from 44% to 24%.
US asset managers account for 27 of the top 50 and manage $30.5trn, 70% of Index assets, but the average rating is also D. Blackrock, the world’s largest asset manager with $4,645bn of assets under management, and Goldman Sachs ($1,252bn AUM) are rated C, while Vanguard ($3,500bn AUM) and State Street ($2,245bn AUM) are among 18 rated D. The only asset managers in the entire top 50 ignoring climate risk are Fidelity Investments ($2,060bn AUM), Affiliated Managers Group ($611bn AUM) and New York Life Investment Management ($528bn AUM).
Across Asia the average asset owner rating is D, but there are signs of progress. A quarter (26%) of Japan’s funds are Laggards with over $1trn of investments, but this has more than halved from 58% a year ago. Six of China’s nine asset owners are Laggards controlling $2.6trn, a position at odds with the country’s leadership on green finance within the G20 and its ambitious plans to invest in renewables, suggesting that there may be significant action that is not being disclosed.
Australia and New Zealand rival Europe, with Australia’s $7bn Local Government Super topping the Global Climate 500 Index, one of six institutions in the Leaders group, and overall its 29 asset owners achieve an average B rating. One of New Zealand’s two funds is also a Leader. However, Macquarie, the sole Australian institution among the top 50 asset managers, rates D. This is a cause for concern, given that it has just agreed to acquire the UK’s Green Investment Bank, Poulter pointed out.
“Climate change is becoming a central part of risk management around the world, and will transcend short-term political setbacks such as moves by the Trump administration in the US to roll back action on climate change,” Poulter said. “Once investors adopt prudent risk management practices they will not unlearn them.”