Investors need more information to fight climate change efficiently through their investing, says an executive of Impax Asset Management, a global impact investing firm with $7.8 billion in AUM.
An overwhelming majority (89 percent) of institutional investors know about the risk that carbon poses to the climate and to their portfolios, but many have not yet acted on that knowledge, according to an Impax survey of 100 institutional investors.
And information that is readily available may be incomplete and lead to poor decisions and lower returns, says David Richardson, executive director and global head of marketing and services for Impax.
“Many investors say they want divest from fossil fuels, but in order to do that they need to do some digging for more information,” Richardson says.
For instance, Richardson predicts there will be a carbon tax imposed on oil companies by 2020. Some companies will be able to pass that tax cost on to customers. Others will have to absorb it. The bottom line some companies will be affected more than others and so will the returns on investments in those companies. Not knowing the detailed information about the companies’ operations can pose risks to portfolios, he says.
According to the Impax survey, institutional investors are at least thinking about what they can and should do. Eighty-nine percent of investors are aware of the carbon risk. But only a little more than one quarter (27 percent) of those have made significant changes to their portfolios to divest from fossil fuels.
A little more than half (54 percent) of those who are aware of the risk have made minor changes to the institutions’ portfolios, and 17 percent have made no changes, the survey says. Many investors indicated they intend to make more changes in the future.
“The survey shows that people are increasingly recognizing that climate change and carbon risk are something they need to do something about.” Richardson says. “But the surprising thing is that many people have not made the move yet.”
“Part of the problem is that, when investors turn to sources for data, they get conflicting reports,” Richardson adds. But “some stockholders’ resolutions have been successful in forcing oil companies to provide more transparency.”
On the positive side, 72 percent of the institutional investors believe that a low carbon portfolio can generate similar returns to a conventional index or portfolio, the survey says.