Big investors prepare for climate change

One-third of institutional investors surveyed by Mercer have decided to allocate more to "climate sensitive assets", and 80 per cent of those surveyed have increased, or plan to increase, their engagement on climate change.

Mercer identified "climate sensitive assets" as real estate, infrastructure, private equities, sustainable equities, renewables and commodities (including agricultural land and timberland).

In a follow-up to its February 2011 'Climate Change Scenarios' report, Mercer interviewed 12 institutional investors who represent almost $2 trillion in assets under management.

The 2011 Climate Change Scenarios report recommended that investors adopt Mercer's 'TIP' framework, which "estimates the rate of investment into low carbon technologies (T), the impacts (I) on the physical environment and the implied cost of carbon resulting from global policy (P) developments across the four climate scenarios".

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The 'Through the Looking Glass' report released today, found that over half of the participants in the original 2011 report are either taking or planning action based on its findings.

In one case study in the new report, AustralianSuper revealed the actions it is taking to mitigate climate change risk. The big industry fund commissioned Trucost to look at the potential impact of climate change on its equities portfolio, and undertook a carbon valuation analysis on its portfolio in preparation for the carbon tax.

AustralianSuper is also engaging a specialist engineering firm to look at the impacts that climate change could have on its infrastructure portfolio up to the years 2030 and 2050.

Mercer head of responsible investing for Asia-Pacific Helga Birgden said the lack of internationally coordinated action on climate policy meant there was "a significant investment risk for the foreseeable future".

"However, Australia's decision to adopt a carbon tax now means that investors in our region are required to recognise capital market signals associated with climate change entailing costs and prudent risk management," Birgden said.