Has the focus on climate change investing shifted since Covid-19?

3 September 2020 – With Extinction Rebellion protests back in the news this week, CAMRADATA’s latest whitepaper on Climate Change asks to what extent interest in climate investing may have shifted due to Covid-19 and what opportunities the pandemic may have brought to increase climate-related holdings.

The whitepaper includes expert insight from guests who attended a virtual roundtable hosted by CAMRADATA in July. The participants included Amundi Asset Management, Eaton Vance Investment Management, Cambridge Associates, Dalriada, National Grid UK Pension Scheme – Trustee Executive Ltd and Save the Children.

The report highlights that the prominence of the climate emergency and related sustainability topics seemed under threat initially by the pandemic, including climate change-related investments, as stock markets fell with more force than in the 2008 financial crisis.

However, climate investing, together with broader environmental topics found within the ESG universe, had gained so much traction among long-term investors before Covid, it quickly became apparent that climate and environment had become an embedded theme within investment strategies.

Sean Thompson, Managing Director, CAMRADATA said, “A number of surveys and commentary published since March/April have highlighted that the investment management community still sees the environment as a central plank of investment and risk management policies.

“Investments related to climate change are fairly wide-ranging, from attempting to ride the ‘green’ wave in alternative energies, disinvesting in fossil fuel companies, to using asset owner clout to ensure oil majors reduce their environmental risk while in the longer term transition their businesses to a lower carbon economy.

“Our roundtable panel considered the impact the pandemic has had on climate investing and how this has affected the way investors think about exposure to these assets in terms of the mix between public and private assets.”

At the roundtable, the guests discussed a study from Carbon Brief which highlighted that global carbon emission may shrink 5.5% this year because of the extraordinary lockdown. However, to meet targets for restricting planetary warming, the economy needs to shrink by 7.6% every year for the next ten years. The panel agreed there were enormous challenges ahead for the global economy but acknowledged that climate change is still a major worry even in these extraordinary times.

Other key discussion points included how policymakers bear the greatest responsibility for climate change; and if asset managers could be more innovative around climate change by devising heat labels and the like; or whether they were lazy.

Key takeaway points were:

  • The last time the developed world found itself in such a perilous situation during the banking crisis of 2008-9; climate change was taken off the agenda in international negotiations.
  • The panel were asked if anxiety over climate change remains prevalent, what can investors do? One panellist said that talking just in terms of financial returns is missing the point of having a world worth living in.
  • Everyone in the investment chain has responsibilities to mitigate climate change; however, one panellist warned that even through working together, the financial sector will not save the world.
  • ESG integration is still a work in progress for most investors. The policy may be in place, but the practice is in development.
  • Pressure has crystallised in recent legislation that demands UK pension trustees consider ESG.
  • One panellist said that asset managers talk of ESG as their passion, present their latest ESG product and then charge more for it.
  • They added that some pension fund boards look at the tracking error relative to the non-ESG index and question why they are paying more if the tracking error is similar. Such behaviour is acting as a barrier for trustees wanting to do the right thing.

The roundtable finished with a discussion about the task that lies ahead. One panellist said that there remains a mismatch in people’s sense of the risks from climate change and the costs of mitigating it.

They said, “We all have to share the costs. Even pension scheme members, because not doing so might mean unpredictable levels of cost and disruption in the future,” adding, “The risks are existential: we might not have a planet worth living on.”

The whitepaper also features two articles from the sponsors offering valuable additional insight. These are:

  • Amundi Asset Management: ‘Climate change: a critical risk on the agenda’
  • Eaton Vance Investment Management: ‘Embracing ESG: Are we at the tipping point?

To download the Climate Change whitepaper click here