Some of the world’s largest institutional investors, with assets totalling about US$30 trillion, moved last week under the auspices of the United Nations to flex their muscle – up against various intransigent governments – to address climate change.
A total of 450 pension funds, sovereign funds and other ‘asset owners’ attended the 8th biennial ‘Investor Summit on Climate Risk’, organised by the United Nations. They discussed their next steps from an investment perspective.
According to Asset International’s ‘CIO’ newsletter, a common theme was the long-term nature of the investors’ portfolios. This suited giving attention to long-term challenges, such as the risks associated with climate change. There did not seem to be any sceptics in the well-heeled room. And money matters when dealing with governments.
Hiro Mizuno, the executive director of Japan’s US$1.5 trillion Government Investment Pension Fund, the world’s largest pension fund, called for the creation of a new global index formed by the numerous RFPs issued by funds to managers each year.
In its report ‘CIO’ says that since the fund outsources 100 per cent of its equity portfolio to external money managers, Mizuno has been fine-tuning methods to make it more sustainable, primarily through indexing and benchmarking.
He is requesting proposals from index vendors to create a new global environmental index, and plans to put “a significant amount of money behind it” to make the benchmark more sustainable. He’s also calling for asset managers to integrate ESG factors into their investment analysis, and urges them to engage directly with companies on the significant ESG issues.
Michael Sabia, chief executive of the US$250 billion Caisse de dépôt et placement du Québec (CDPQ), said climate change now entered every investment decision his fund made across its asset classes by triangulating return, risk, and climate impact.
Every asset class for the fund and every investment team had a carbon budget, and they had to live within that in the same way that they had to live within a risk budget, he said.
Yngve Slyngstad, chief executive of the US$1 trillion Norges Bank Investment Management (NBIM), said, as a long-term loaner, “development of the economic sustainable growth for the long-term is in our core interests”.
Climate change has been an NBIM focus area since 2005. After much dialogue with companies and investors, NBIM created an “expectation document” to look at issues on a company level, calling for an increase in the level of disclosures on things such as carbon footprints. He has also asked 55 banks to examine their lending portfolios.
“From our point of view, to go from words to action, you have to have the middle step of getting the numbers in place. So, our key master share today is a very simple one: We will encourage companies, but also investors, to focus on getting good numbers, and in more detail that they can report on to get measured and managed. Eventually that will have consequences for companies and the investors,” Slyngstad told ‘CIO’.