A new survey released by the Asia Investor Group on Climate Change (AIGCC) reveals an increasing move by investors away from climate risk, and towards net zero investment opportunities. The report also indicates increasing sophistication by investors in their integration of climate strategies in the investment process, while highlighting key barriers to more complete integration.
The AIGCC was launched in 2016 as part of the Global Investor Coalition, a group of regional climate change investor groups providing a global platform for dialogue between investors and governments on climate policy, facilitating corporate engagement on climate risk, and supporting increased low carbon investment. The organization is aimed at creating awareness among Asia’s asset owners and financial institutions about the risks and opportunities associated with climate change and low carbon investing. For the new study, the AIGCC surveyed regional asset managers and asset owners, including insurance firms, government pension funds and sovereign wealth funds, representing over $1.9 trillion in assets under management, in November and December 2020.
The survey found clear evidence of an increased investor appetite for climate solutions, with approximately 90% of Asian frontier and emerging market investors, as well as developed market investors reporting actively deploying climate aligned or low climate investments, compared with fewer than 60% of emerging markets and slightly over 70% of developed market investors surveyed in 2019.
Similarly, implementation of climate aligned strategies is growing rapidly, with nearly 70% of respondents using decarbonisation strategies, up from less than 30% in 2019, and almost half utilizing a portfolio tilting strategy, an increase of more than 35%.
Investors are also becoming more sophisticated in their approach to climate investment strategies and risk management. For example, 79% of investors in listed equities and 74% in fixed income reporting conducting carbon footprint analysis on assets, compared with only 19% and 11% in 2019, respectively. Investors are also increasingly using a broader range of methodologies to define green or climate aligned investments, including the EU Taxonomy, building and infrastructure related standards, and the China NDRC’s guiding catalogue, among others, and relying less on third party ESG data providers.
Other key findings of the survey include:
Reporting. 50% of respondents report already disclosing against the Task Force for Climate-related Financial Disclosures (TCFD) recommendations, with another 30% actively considering it.
Corporate engagement. Investors are becoming increasingly active on climate engagement, with 70% reporting using corporate engagement strategies on climate, compared to roughly half of respondents in 2019. Investors are increasingly participating in global collaborative engagement initiatives such as Climate Action 100+ and the Net Zero Asset Managers Initiative.
Barriers. The most common barrier reported to increasing exposure to low carbon or green investments is a lack of tools to measure green impact, followed by a lack of opportunities with appropriate risk-return objectives, and a lack of a clear definition of low carbon or green investments.
AIGCC Executive Director, Rebecca Mikula-Wright said:
“The survey results should send a clear signal to Asian policymakers. If you create investable opportunities there is significant private capital interested in supporting and accelerating the transition to net zero emissions.”
“This latest survey shows that Asian investors are becoming more sophisticated in their approach to climate risk and are better positioning themselves to take advantage of the opportunities in the inevitable transition to net zero emissions.”
“Overall, the trends captured in this survey indicate that Asian investors are moving in the right direction on climate change. We know that once Asia gets going it won’t be long until it overtakes rest the of world.”
Click here to view the AIGCC report.