In general, investors’ strategy toward sustainability investment is likely to be driven by one or more of the following factors:
- Government policy and regulation
- Their own decarbonization or net-zero target
- Commitments made to clients at fund and investment level (the fund mandate)
- Portfolio performance and risk, including the risk of stranded assets or physical risks
Investors use different frameworks to assess their investments depending on the extent to which they are driven by policy, targets, mandates or risk. In the Nordics, for example, some pension funds aim to transition their investment portfolios to net-zero greenhouse gas emissions by 2050.4 It is not just climate issues that investors are monitoring either. Increasingly, investors are paying close attention to a wide range of other social and environmental issues, including biodiversity and nature, governance and human rights practices.
When it comes to gauging the impact of climate change, the survey highlighted that investors heavily monitor portfolio performance and risk. Nearly two-thirds (64%) of investors surveyed say they are most likely to closely monitor losses or stranded assets tied to extreme or anomalous weather-related events. This reflects the direct financial impact these threats can potentially have on a portfolio.
Research suggests that insurance premiums for physical risks and natural catastrophe protection are set to increase by 50% by 2030, reaching US$200 billion to US$250 billion globally.5 Another report predicts that the global cost of decommissioning stranded assets in the energy sector could be as high as US$8 trillion.6
In line with their concerns around insurance losses and stranded assets, 63% of investors also monitor routine climate reporting, including routinely reported data on weather, temperatures, ice sheet degradation and other long-term factors. Additionally, investors are interested in what their peers are doing, with 41% paying attention to shifts in climate-related policies by other investors.
