Asset Owners Considering Climate Change Investment Policies Double

A new report reveals twice as many investors are asking stock and bond managers about their global-warming policies as two years earlier, but integration of these policies into investment mandates has failed to take off.

(June 8, 2010) — A new report by the Institutional Investors Group on Climate Change (IIGCC) revealed that while the number of asset owners considering investors’ climate change policies as key to selection has doubled since 2007, the actual integration of these policies into investment mandates has been stalled.

According to the findings, 70% of asset owners commissioned or supported climate change research, compared to 45% the previous year. Additionally, the survey, conducted by Mercer, found 60% of asset owners asked climate change related questions when meeting with potential managers in 2009, compared to 30% in 2007. Institutions surveyed include units of Aviva Plc, BNP Paribas, F&C Asset Management Plc and the pension fund for BT Group Plc.

“The fact that asset owners now question their asset managers about their climate change policies prior to making a selection is a clear signal of increased awareness on climate change in the investment community,” said Ole Beier Sørensen, the new chairman of IIGCC. “This progress will be further strengthened if attention to climate change is applied throughout the decision‐making process, from investment manager selection to Investment Manager Agreements.”

The majority of the 26 institutions surveyed (80%) said they were actively engaging with companies on issues related to climate change. In addition, 75% of these investors now also engage with companies on setting policy commitments on climate change, including absolute carbon emission reduction targets.

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David Russell, co-head of responsible investment at the British universities pension fund, the Universities Superannuation Scheme (USS), commented that investors are taking account of climate change when there is a price on carbon with clear regulatory incentives, such as government support for renewable energy, according to a release. He explained that climate change issues are largely not integrated “when policy does not make the issue material, when there are uncertainties surrounding climate change policy and when the long‐term nature of many physical climate change impacts means that they are outside current investment horizons.”

The London-based Institutional Investors Group on Climate Change has 58 members who manage about 5 trillion euros ($6 trillion) of assets.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

A trend has emerged as pension funds shift away from equities and invest in riskier assets by diversifying into alternatives, with infrastructure leading the way.

(June 8, 2010) — A recent survey by bfinance shows that pension funds are continuing to diversify into increasingly risky assets, with interest in private markets likely to expand in the short to mid-term.

The consultancy’s bi-annual pension fund study discovered less liquid strategies and asset-classes are poised to be the main beneficiaries of a continued shift in global institutional investor allocations. The latest study reveals a trend of pension funds moving down the liquidity scale, investing into riskier assets and diversifying into alternatives.

The leading beneficiary of this trend is infrastructure, according to the study, as well as commodities, private equity, portable alpha and absolute return strategies. In the following six months, about 16% of respondents said they would increase their allocation to infrastructure, while 30% of investors indicated they intend to increase their infrastructure allocation over three years.

“Institutional investors are feeling more comfortable with the markets, therefore taking on the risks of different asset classes,” said bfinance’s Jean-Francois Milette to ai5000. One such investor, Staffan Sevón, CIO of Veritas Pension Insurance, indicated in the release that as interest-rates have moved lower, he’s been pushed to diversify and take advantage of new areas such as infrastructure to achieve the kind of returns ultimately needed to pay out pensions.

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Conversely, the study’s results show investors are planning a 17% and 37% decrease in allocating to equities over the next six months and three years respectively.

The firm’s latest Pension Funds & Insurance Asset Allocation Survey, conducted during the flash crash of May 2010, drew respondents from a representative sample of 50 plans across Europe – 18% of which are based in the UK. The survey’s target audience included a cross-section of pension funds, almost half (46%) of which are corporate followed by public pension funds (30%) and endowments (8%) with total assets under management of €92 billion. The pension funds had, on average, a 44% target allocation to equity, 37% to bonds, 16% to alternatives and 3% to cash.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742