A new study has accused investment funds of failing to manage climate risks properly, subsequently exposing investors to potentially huge losses in the future.
The Global Climate Investment Index by the Asset Owners Disclosure Project (AODP) scrutinises pension funds, sovereign wealth funds and insurance companies that account for more than $70 trillion to discover how they manage the financial risks that derive from climate change.
The survey focused on transparency, risk management, investment chain alignment, active ownership and low-carbon investment.
It found out that only 27 of the 460 investment funds analysed are currently considering climate risks, with just five rated AAA (very good). Eighty per cent were rated D or X – meaning they do very little or nothing in relation to climate risks.
Julian Poulter, director of the AODP, said, “While we can see some leaders emerging, many haven’t acknowledged their dangerous and foolhardy addiction to investments riddled with climate risk, let alone checked themselves into rehab.
“It’s pretty clear through the Index that the big laggard funds continue to be too scared to take on big fossil fuel companies, even though they know there are enormous risks through continuing investing in them.”
Among the highest rated are the UK’s Environment Agency Active Pension fund (AAA), Aviva (AA) and Norfolk Pension Fund (AA).
Major Norwegian pension fund Storebrand, which broke ground in July when it revealed it would be divesting from a range of “financially worthless” fossil fuel firms, was rated AA.
The UK’s worst performers include GlaxoSmithKline (D), BP UK Pension Scheme (D), Lloyds Banking Group (X), and HSBC Holdings (D).
Poulter added, “Investment funds must put their members’ interest front and centre, but when it comes to climate risk they largely fail at the first hurdle.”