Almost half of asset managers ignoring climate – Ceres

New York, 7 January: An alarmingly high number of asset managers are ignoring the risks posed by climate change in their investment decision-making, according to a report by Ceres.

About 44% of asset managers said they do not consider climate risks at all because they do not believe that the issue is material to their investment decision making, according to a survey by Boston-based Ceres, a coalition of investors and environmental groups.

“I would argue this perspective is disappointing,” said Mindy Lubber, president of Ceres and director of the Investor Network on Climate Risk (INCR). “It defies reality.”

The report, Investors Analyse Climate Risks and Opportunities: A Survey of Asset Manager Practices, found that 71% of asset managers do not expressly consider climate risks for investments outside specifically ‘green’ funds.

However, asset managers such as UK-based F&C Management, are set to thrive in the market by considering a broad range of climate-related issues such as regulatory, litigation, physical and competitive risks as part of their due diligence process for evaluating companies, Lubber said.

“We think that climate change continues to present significant risks and opportunities in 2010 and we will continue to ask companies to manage these risks going forward,” said Alexis Krajeski, associate director of governance and sustainable investment for F&C.

Half of the survey respondents said they did not analyse climate risks because their investor clients such as pension funds, governments and other private institutional investors did not ask them to.

“I think the report has some disturbing, some surprising, some interesting findings that we can reflect on,” said Jack Ehnes, chief executive officer at the California State Teachers Retirement System, the second largest US public pension fund with $132 billion in assets.

One of the problems with taking climate risks into account is the incentive structures and benchmarks that investors use for evaluating asset managers focus on quarterly returns rather than rewarding long-term decision making, the report stated.

The survey was carried out in early 2009 at the request of the INCR, a network of 80-plus pension funds and other institutional investors who rely on asset managers to manage their portfolios. It was sent to the world’s 500 largest asset managers, but was completed by only 66 of these companies and 18 others specifically asked by the INCR. The survey respondents manage $8.6 trillion in assets.