Asset owners urged to ramp up climate investing pressure
Asset owners need to speak louder in terms of requiring more green investment options, according to panellists at a recent online webinar by the Asia Investor Group on Climate Change (AIGCC).
The discussion coincided with AIGCC's latest annual report on decarbonisation efforts by investors in the region.
With energy transition now high on the agenda for the investment community, “I think investors and stakeholders in the region need to work together on how to decarbonise the sector," said Muazzam Mohamad, head of investment stewardship at Malaysian state investor Permodalan Nasional Berhad (PNB).
The AIGCC report covers the carbon reduction efforts of 200 investors in Asia, with a collective AUM of $76 trillion, including 100 institutional asset owners from 15 countries.
Monica Bae, director of investor practice at AIGCC, noted that according to their research, only about 20% of asset owners and 30% of asset managers have some sort of climate action plan in place.
“A lack of strong climate mandates from asset owners is seen as a potential barrier to more effective engagement by asset managers. It also sends a weak message to policymakers,” said Bae.
PROGRESS NOT PERFECTION
Malaysian asset owners are pushing for greater activity on climate, according to Mohamad.
PNB, one of country’s largest asset managers, published its sustainability framework in 2022, committing to a net zero portfolio by 2050.
“Owning 10% of the [Malaysian] market puts a lot of responsibility on us as an investor," said Mohamad.
"We aim for progress, not perfection. We have set our carbon intensity targets are 30% by 2030. We have also set a coverage target, to have 70% of our portfolio to be net zero aligned by 2030."
PNB
PNB has supplementary commitments, for example to invest in green assets, to not invest in new greenfield coal and to campaign against deforestation and exploitation.
He highlighted two broad challenges; number one being data.
“As we get more comprehensive in tracking carbon emissions, we will require a lot more data from our portfolio companies," he said.
“At the same time, we see a rising awareness of a nature and biodiversity and I think in future we will need lot more data in that area.”
GREATER COLLABORATION
Another speaker, Hiromichi Mizuno, the former CIO of Japan’s Government Pension Investment Fund, struck a similar note, urging investors to broaden their outlook on climate investing.
“We need to think more holistically and collaboratively. There is much more we should be doing. Engagement has long been an integral part of sustainable investing. It’s a key lever for shifting the mindset of a company. That is good, but I wonder if you are thinking about it globally enough," said Mizuno.
He told the webinar he was encouraged that investors are taking on their climate responsibilities, such that 75% of AIGCC members have aligned with the Task Force on Climate-related Financial Disclosures (TCFD).
“The Asian investment community is really driving the change. It shows how having a collective goal can help you reach targets faster."
But Mizuno added that big asset owners with globally diversified portfolios cannot achieve decarbonisation targets if the capital markets are not sustainable.
ex-CIO of GPIF
“Investors should not only pay attention to what they own, but also what they don’t own.”
On the issue of engagement, Mizuno said it should not be limited to heads of portfolio companies.
“Engaging one set of stakeholders probably won’t be enough. Engage all stakeholders to educate the community to which you belong.”
For asset owners, this is a real opportunity to work more closely with policymakers, he added.
“For example, public pension funds are highly regulated and … if the rules dictate that a fund must decarbonise its portfolio, then the government can help by creating policies that push the economy to decarbonise.”
However, “very few governments - in fact none - have really come up with a policy to help the asset owners and asset managers to achieve carbon neutrality quicker. I think this is one area we can really work on.
“We really need to drop our egos and work out the most effective and powerful message on transition, and collaboration will be the key.”
RENEWABLE DEMAND
The AIGCC report notes that investment in climate solutions is accelerating, with the strongest investor interest in renewable energy, followed by energy storage, low carbon transportation, low emissions fuels (e.g. hydrogen) and green infrastructure.
The report highlights that many investors in Asia have significant vulnerability to physical climate risks. Here, a relative smaller proportion of investors, only 4%, have developed a plan to build resilience to physical risks into portfolios.
More encouragingly, 63% of investors have undertaken a climate physical risk assessment across at least one asset class.
The other key focus area is deforestation. “One of the trends we see is that the major investors are incorporating deforestation into their investment strategies, policies and also going further to engage with companies,” said AIGCC's Bae.