SWFs need to move on climate

Sovereign wealth funds need to take immediate action to mitigate the effects of climate change, according to a first of its kind survey of sovereign wealth funds.

Jointly conducted by the International Forum of Sovereign Wealth Funds (IFSWF) and One Planet Sovereign Wealth Funds (OPSWF), the survey of 34 sovereign wealth funds found 93 per cent of respondents recognise that climate change is a risk and/or an opportunity for their portfolios. The majority also agree that financial markets are under-pricing climate change risks.

While 83 per cent of SWFs surveyed claimed to take climate change into account in their investment decisions, there was a big difference in how systematic and sophisticated these approaches were. Nearly half said they take climate change related risks and opportunities into consideration, but not in a systematic way. Only 12 per cent said they have a specific climate change framework in place, which was the same percentage that said they don’t consider climate risks at all.

About a third of respondents said they have a formal climate change strategy in place, but over half of respondents do not publicly disclose any information on their climate change approach.

According to the survey responses a third of SWFs said they have more than 10 per cent of their portfolios invested in climate-related strategies. More than half report they undertake climate related engagement and 14 per cent have divested based on environmental considerations.

More than half of SWFs surveyed (60 per cent), said the board or CEO was responsible for climate change, demonstrating the importance of the topic. And 88 per cent of respondents said climate change will have a material negative impact on long-term economic growth. They survey also found that COVID-19 had increased consideration of climate change in the investment process and the attractiveness of sustainable investment.

The survey found there were two main barriers to further action: finding appropriate data; and convincing stakeholders of the business case for action. Around 18 per cent responded that “our stakeholders do not think this is an issue that is important”.

Renewable energy and energy distribution and storage infrastructure were the stand out investment opportunities according to the SWFs, followed by energy efficiency solutions and low-emission transport solutions.

Since 2015, IFSWF members have increased investments in agritech, forestry and renewables from a combined $324 million to $2 billion in 2020.

The One Planet Sovereign Wealth Funds was formed in 2017 and now has expanded to 14 SWFs, 14 managers and five private investment firms with combined $30 trillion. They are all implementing the OPSWF framework for integrating climate change risks and investing in the smooth transition to a low-emission economy.

The six founding members of the working group are: Abu Dhabi Investment Authority, Kuwait Investment Authority, the New Zealand Superannuation Fund, Norges Bank Investment Management, the Public Investment Fund of the Kingdom of Saudi Arabia, and the Qatar Investment Authority.