Climate investors get more sophisticated, but paltry data continues to hamper decision-making: report
Michelle Quah
INVESTORS have upped their game in climate investing – they have gained a higher-level understanding of what affects their investments, and are incorporating more renewable energy alternatives, along with biodiversity and social concerns into their considerations.
But, a lack of knowledge and data continues to hinder their decisions.
These were among the key findings in Robeco’s 2023 Global Climate Survey, published on Tuesday (Mar 21). Into its third year, the survey examines how investors are approaching the opportunities and risks associated with climate change.
This year’s edition covered 300 of the world’s largest institutional and wholesale investors in Europe, North America, Asia-Pacific and South Africa – which represent some US$27.4 trillion in assets under management.
“Climate action continues to mature,” said Lucian Peppelenbos, climate and biodiversity strategist at Robeco. “Most investors have done their materiality assessments and evaluated the carbon footprints of portfolios. They are now getting their heads around more complex topics, such as integrating Scope 3 emissions and forward-looking data on the transition readiness of companies into their investments.”
Robeco’s survey found that a growing number of investors – 48 per cent, compared to 45 per cent last year – have made, or are in the process of making, a public commitment to net-zero by 2050, which points to their intention to decarbonise their holdings.
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Perhaps more significantly, a substantial portion – 55 per cent – have developed a high-level understanding of the largest material impact of their investment portfolio on carbon emissions. Almost half – 42 per cent – calculated the carbon footprint of their holdings, using Scope 1 and 2 emissions.
Scope 1 emissions are direct emissions from sources owned or controlled by an organisation, while Scope 2 are indirect emissions from the purchase and use of energy sources.
But, the survey also showed that investors are still on a journey. Fewer have reached the stages of measuring Scope 3 emissions (20 per cent) – all other indirect emissions that occur in an organisation’s upstream and downstream activities.
And, only about a quarter intend to or have divested from carbon-intensive investments, with a pinch more (27 per cent) having taken a forward-looking view on the emissions pathways that investee companies are on.
The survey also found that geopolitical developments have shaped investors’ choices – to an extent. The sharp rise in energy prices led to nearly half (47 per cent) of investors reviewing their approach to environmental, social and governance investing and sustainability, by permitting higher allocations to oil and gas companies in order to avoid short-term losses.
Still, many investors are sticking to their long-term plans, even in the light of such short-term disruption. More than half (51 per cent) said the energy crisis has reinforced the importance of backing renewables, while 40 per cent have increased active engagement with energy companies over the need to move away from fossil fuels and to renewable energy.
Notably, a just transition to a low-carbon economy – or addressing the social implications of the energy shift – is also becoming more important to investors. Over two-thirds (68 per cent) said it would be a significant factor in their investment policy in the next two years. However, only 41 per cent said they have the knowledge to support this.
Kim Rosenkilde, group chief investment officer of Singapore insurance and investment service provider Singlife, about the difficulty of obtaining good information: “We don’t have data on this, and I find that when we speak to managers, we get some incredibly weak answers.”
The same was true of biodiversity – investors are better appreciating how biodiversity loss and climate change are interlinked, but getting access to data remains a challenge.
Nearly half of those surveyed (48 per cent) said biodiversity was at the centre of or a significant factor in their investment policy, up from one-fifth (21 per cent) two years ago. But, 64 per cent said there is a lack of awareness of the financial implications of biodiversity loss, while 55 per cent did not have a way to assess the impact of investment decisions on biodiversity.
The need for more suitable investment data, research and ratings, as well as greater internal expertise, were cited as being among the biggest challenges for investors wanting to take account of biodiversity in their investment portfolio.
“There is much hard work ahead of us, and no less than 40 per cent of investors express doubts as to whether they have the necessary knowledge, tools and policy incentives to make it happen,” Peppelenbos said.
“We are close to reaching a tipping point for the mainstreaming of climate change, biodiversity and (a) just transition into investment strategy … the survey is a clear call upon policymakers and regulators to keep course toward net-zero by 2050 and to provide the long-term clarity that investors need for making their contribution.”
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