A new study conducted by FairPensions suggests most U.K. asset managers regard climate change as a critical investment issue. However, those same managers say they are prevented from taking action on such issues because of low carbon prices and a lack of demand from clients.
FairPensions surveyed 39 of the U.K.’s largest investment managers, representing about $12 billion in assets under management, in a study called "Preparing for the storm? - UK fund managers and the risks and opportunities of climate change," released earlier this month.
“An overwhelming majority (89%) of participating fund managers recognize that climate change is an “important” or “very important” investment issue, and a large majority (66%) state that it has become more important in the last two years,” the study says.
“However, 63% of fund managers surveyed said that the low current carbon price was the most significant barrier to the incorporation of climate change risks and opportunities into investment analysis and decision making.” This creates, in the words of one manager surveyed, an “imbalance between the relatively short-term horizons of mainstream investment analysis and the relatively long-term nature of the material business impacts of climate change”
The findings also suggest that fund managers feel little pressure from clients to temper short-term thinking: 56% of respondents cited “lack of demand from clients” as a barrier to managing climate change risks and opportunities.
Despite the near-universal recognition of the importance of climate change, there are significant differences in the extent to which fund managers are taking action to anticipate climate change, the study notes. For example, only 29% of those surveyed make use of climate change data in their analysis of “all companies where data is available.”
Fund managers surveyed fell into two main camps, those who take the view that “all sectors of the economy will be affected” versus those who think that “carbon emissions are material and relevant for some sectors but not for others: 39% request climate change data from companies in “all sectors” and a similar proportion (36%) request such data from companies in “a minority of sectors.”
Perhaps surprisingly, there is a strong consensus amongst participating U.K. fund managers on the need for greater regulation: 86% stated that they would welcome requirements on companies to report greenhouse gas emissions and 78% would welcome stock exchange listing rules requiring companies to disclose climate related risks.
In addition to support for reporting requirements, 72% would also welcome regulatory requirements on companies to reduce emissions.
Fund managers need clear signals from asset owners, the study concludes. Lack of client demand is identified in this report as one of the key barriers to fund managers taking action on climate change. “In the absence of any immediate pricing imperative to take climate change into account, clients should send clear instructions that the longer-term risks and opportunities associated with climate change should be given appropriate weight.”
“However, 63% of fund managers surveyed said that the low current carbon price was the most significant barrier to the incorporation of climate change risks and opportunities into investment analysis and decision making.” This creates, in the words of one manager surveyed, an “imbalance between the relatively short-term horizons of mainstream investment analysis and the relatively long-term nature of the material business impacts of climate change”
The findings also suggest that fund managers feel little pressure from clients to temper short-term thinking: 56% of respondents cited “lack of demand from clients” as a barrier to managing climate change risks and opportunities.
Despite the near-universal recognition of the importance of climate change, there are significant differences in the extent to which fund managers are taking action to anticipate climate change, the study notes. For example, only 29% of those surveyed make use of climate change data in their analysis of “all companies where data is available.”
Fund managers surveyed fell into two main camps, those who take the view that “all sectors of the economy will be affected” versus those who think that “carbon emissions are material and relevant for some sectors but not for others: 39% request climate change data from companies in “all sectors” and a similar proportion (36%) request such data from companies in “a minority of sectors.”
Perhaps surprisingly, there is a strong consensus amongst participating U.K. fund managers on the need for greater regulation: 86% stated that they would welcome requirements on companies to report greenhouse gas emissions and 78% would welcome stock exchange listing rules requiring companies to disclose climate related risks.
In addition to support for reporting requirements, 72% would also welcome regulatory requirements on companies to reduce emissions.
Fund managers need clear signals from asset owners, the study concludes. Lack of client demand is identified in this report as one of the key barriers to fund managers taking action on climate change. “In the absence of any immediate pricing imperative to take climate change into account, clients should send clear instructions that the longer-term risks and opportunities associated with climate change should be given appropriate weight.”
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