Investor survey: Appetite for climate investment accelerating, diversifying and driving engagement with companies

Investor survey: Appetite for climate investment accelerating, diversifying and driving engagement with companies
20/08/2019 Madeleine Hill

Investor appetite for climate investment opportunities continues to grow and investment activity is accelerating, even as regulatory uncertainty threatens future growth in Australia, according to a new survey of institutional investors released today by the Investor Group on Climate Change (IGCC).

Set out in a new report – Accelerating Change – institutional investors have provided new insights into how they are approaching low carbon and green investment opportunities and where they are active by market and asset class. The survey was undertaken over the June to July period in 2019, with investors managing more than $1.3 trillion in assets responding to questions on their approach to climate investment.

“Despite recent political upheavals, investors in Australia and New Zealand are focused on finding low carbon opportunities and getting deals done”, said Emma Herd, Chief Executive Officer of the Investor Group on Climate Change. 

“Climate-aligned investment is continuing to accelerate. Investors are actively looking for opportunities to support climate solutions and embed climate change into whole of portfolio management”.  

Key findings from the survey include:

  • 90% of the investors surveyed are implementing low carbon strategies.
  • 50-80% of investors surveyed are undertaking or are actively considering low carbon investment across most asset classes
  • More than 70% of investors have or are considering climate-aligned targets for their portfolios. Many are also doing the same across a range of asset classes.
  • When faced with policy uncertainty, more than 40% of investors redirect investments to jurisdictions, sectors or markets with less uncertainty, and nearly 60% increase company engagement to manage climate-risks across their portfolios.
  • Over 80% of investors are actively considering reporting under the Taskforce on Climate-related Financial Disclosures.

“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”.

“Perceived barriers to climate investment have evolved in response to increased investor activity. Lack of investable deals at scale and policy uncertainty remain major barriers to increased investment”. 

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

“Recent company engagement by investors with companies, such as Glencore, Rio Tinto, BHP Billiton, Shell and BP, are 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 widespread adoption of the final recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) by investors is impacting the investor practice, through increased target setting and public commitments”. 

The emergence of the Australian Sustainable Finance Initiative in Australia and the Sustainable Finance Forum in New Zealand, will likely accelerate this trend of mainstreaming climate change into investor practice. 

The report sets out a number of recent examples of institutional investors are setting targets, developing products and reporting on the outcomes of their climate change investment strategies. 

“IGCC will continue to support growing appetite among institutional investors for climate-aligned investments, and to work with our members to develop investable solutions to facilitate the transition to a resilient, net zero emissions economy,” Herd said.

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