According to a new report, a majority of key global investors now agree there are financial risks associated with climate change. For the first time, the Asset Owner Disclosure Project, a major global index that rates how investors manage such risks, rated the 50 largest asset managers on their performance managing the financial risks entailed by climate change. Despite their findings, the project’s chairman, John Hewson, said there is still “enormous resistance” to taking action to address climate change.
The project scored asset managers on portfolio carbon risk management and on governance and strategy, issuing ratings ranging from leaders (A-AAA) rating), to challengers (B-BBB), learners (C-CCC), bystanders (D-DDD) and laggards (X).
It found that 40 percent of asset owners and just 6 percent of asset managers were in the laggard class, meaning they scored zero on metrics for managing and disclosing climate risks. According to the report, “the scales have tipped,” with 60 percent of asset owners addressing risks from climate change.
The total of 500 asset owners included 34 leaders, 34 challengers, 44 learners and 187 bystanders, and 201 laggards, down from 246 last year. The best performing countries were in Oceania and Europe, with Australia and New Zealand topping the list.
The report warned, however, of lingering resistance to action among asset owners in Australia, because of a tendency to “take a very short-term focus, and rely on short-term remuneration, so they won’t take a medium to long-term challenge on easily.”
According to Hewson, “The government downplaying the need to transition to renewables doesn’t help … It’s not conducive to a serious assessment of risk, that’s for sure.”
Hewson, an Australian former opposition leader warned that financial crisis resulting from climate change would be a “global phenomenon and is a global risk,” dwarfing the subprime mortgage crisis that led to the 2008 global financial crisis.
Hewson also called on regulators to mandate disclosure of climate related risks, and said the G20 processes and the Bloomberg taskforce on climate-related financial disclosures would “inevitably” lead to these disclosures.
“The solution should be disclosure first, because once [asset owners and managers] admit this is the risk they’re running, naturally they’ll want to manage it,” he said.
He also praised the Australian Prudential Regulation Authority for a statement in March warning that individual directors could be financially accountable for not factoring losses due to climate change.