A recent survey conducted by Market Forces has shed light on a significant disconnect between institutional investors’ awareness of climate risks and their investment strategies. The research comprised an online survey of 150 institutional investors from over 100 US, UK, Singapore, Japan, Australia, Hong Kong, and Belgium companies.
“This is an important topic which seemed to be losing traction and media attention. The inflationary environment coupled with cost pressures have contributed to waning interest and discouraging investors, governments, and the public from tackling this important topic as a priority it deserves.” said a survey participant from a UK Bank.
Key findings from the survey:
Reputational risk over environmental concerns: The survey found that reputational risk and client returns influence investment decisions, while ecological, climate, and social impacts rank as lower priority.
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“Fund managers are less concerned about climate risks than they are about political/activist pressure. This is almost entirely because climate risks have very little impact on asset performance,” the report quoted a fund/portfolio manager from the US.
Scope 3 emissions ignored: Many investors overlook Scope 3 emissions (indirect emissions along a company’s value chain). 25% of respondents said they ‘never’ or ‘rarely’ consider Scope 3 emissions when evaluating an investment, while 37% said they only sometimes did this.
Personal views shape decisions: With increasing concerns about climate change, personal biases influence decision-making. 84% of respondents said they were moderately to extremely concerned. The levels of concern about climate change were considerably higher amongst respondents in the UK and Asia-Pacific (APAC), and respondents from banks indicated they were ‘very’ or ‘extremely’ concerned about climate change.
Also read: Developing nations face the most climate finance challenges, says report
Reliance on internal models: Most investors rely on internal modeling (69%) and investee disclosures (56%) rather than authoritative sources like the International Energy Agency (29%) and Intergovernmental Panel on Climate Change (17%) scenarios to assess climate risks and opportunities