Climate investment becoming industry norm: study

Climate-aligned investment is accelerating among Australian and New Zealand institutional investors despite regulatory uncertainty, with a new survey finding 90 per cent of local investors are implementing low carbon strategies.

The report by the Investor Group on Climate Change (IGCC) was based on a survey of investors managing more than $1.3 trillion in assets and asked about their approach to climate investment.

Around 50 per cent to 80 per cent of investors said they are undertaking or considering low carbon investment across most asset classes.

More than 70 per cent of investors were found to have or consider climate-aligned targets for their portfolios, with many also doing the same across a range of asset classes.

The report noted over 80 per cent of investors are actively considering reporting under the Taskforce on Climate-related Financial Disclosures.

Emma Herd, chief executive of the IGCC said despite recent political upheavals, local investors are focused on finding low carbon opportunities.

“Climate-aligned investment is continuing to accelerate,” Ms Herd said.

“Investors are actively looking for opportunities to support climate solutions and embed climate change into whole of portfolio management.”

Ms Herd said perceived barriers to climate investment have evolved in response to increased investor activity, with lack of investable deals at scale and climate policy uncertainty remaining major obstacles.

When faced with policy uncertainty, more than 40 per cent of investors reported redirecting investments to jurisdictions, sectors or markets with less uncertainty, and nearly 60 per cent were said to increase company engagement to manage climate risks across their portfolios.

“When faced with increased policy uncertainty or regulatory uncertainty in key markets, investors go offshore to find climate investment opportunities, and they ratchet up active engagement with companies they own,” Ms Herd said.

“Recent company engagement by investors with companies such as Glencore, Rio Tinto, BHP Billiton, Shell and BP, is beginning to build the resilience to companies and the investors who own them have to growing climate-related risks.

“In the absence of clear policies to achieve net zero emissions in line with the Paris Agreement investors are likely to increase company engagement to reduce their exposure to an uncoordinated and ad hoc policy response.”

The Australian Sustainable Finance Initiative in Australia, a roadmap with policies and frameworks to meet global goals such as the UN Sustainable Development Goals and the Paris Agreement, will be launched in 2020.

The project has been collaborated on between major banks, superannuation funds, insurers, and finance industry bodies will only add to the trend of making climate change an investment industry norm.

The IGCC believes the initiative will only speed up the trend of climate change being integrated into investment practice and becoming industry standard.

Ms Herd noted the search for climate opportunity is moving into more asset classes.

“Diversification is a key theme, with investors allocating capital across a broad range of classes including listed equities, private equity, fixed income, infrastructure, timber, forestry and agriculture and real estate,” she said.