Sovereign Wealth Funds Climate Change Report
The International Forum of Sovereign Wealth Funds (IFSWF) releases a climate change report aimed at analyzing how sovereign wealth funds view and respond to climate change.
This report uses a questionnaire survey to collect the views on climate change from 34 sovereign wealth funds around the world. The assets managed by them are approximately US$7 trillion, accounting for more than 90% of the total size of global sovereign wealth funds. It is also the fourth survey launched by IFSWF into these universal asset owners.
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Climate-related Investment Decisions of Sovereign Wealth Funds
Regarding the motivation for considering climate change in investment decisions, 68% of respondents believe that it can improve long-term returns (compared to 60% last year), and 62% of respondents believe that it can reduce investment risks (compared to 60% last year). 29% of respondents have detailed climate change-related requirements in their investment mandates (compared to 14% last year).
Sovereign wealth funds have adopted numerous measures to assess the risks and opportunities associated with their investment portfolios. 34.5% measure the carbon footprint of their investment portfolios (up from 18.5% last year), 37% measure the carbon footprint of specific asset portfolios (up from 33.3% last year), and 22.2% assess the decarbonization pathways of their holdings (up from 15.4% last year), and 31% adopt climate scenario analysis (up from 24% last year). IFSWF added a transition plan question to this year’s survey and found that 18.6% of respondents already have a transition plan, 33.3% are in the process of developing a transition plan, and 48.1% are considering developing one.
In terms of asset classes involved in formulating climate-related investment portfolios, private equity, real assets, and listed company stocks accounted for the highest proportions, accounting for 66.7%, 53.3% and 53.3% respectively. Bonds and alternative products stand for lower proportions, accounting for 26.7% and 53.3% respectively. 20%. The main reason why sovereign wealth funds choose equity assets is that these assets are convenient for measuring the impact of climate change and have more obvious advantages in active engagement. At the same time, while interest rates remain high, valuations for these assets are attractive.
Climate-related Disclosures of Sovereign Wealth Funds
As sovereign wealth funds integrate climate into their investment decisions, their climate-related disclosures are gradually improving. 40% of respondents disclosed methods to combat climate change in their annual reports (compared to 33.3% last year), and 30% disclosed these methods on their websites (compared to 14.8% last year). More than 75% of respondents have adopted the guidance framework of the Task Force on Climate-related Financial Disclosures (TCFD) or the framework developed by the Global Reporting Initiative (GRI).
Regarding the climate information disclosure requirements for asset management companies, 76.7% require asset management companies to provide methods to deal with climate change (up from 70.4% last year), and 50% require asset management companies to provide specific climate indicators (up from 40% last year), 30% include specific climate clauses in contracts with asset management companies (up from 14.8% last year), and 16.7% require asset management companies to disclose information based on the TCFD framework (up from 7.4% last year).
Future Investment Directions of Sovereign Wealth Funds
Among climate-themed investment-related opportunities, renewable energy, water management and green buildings account for the highest proportions, reflecting that sovereign wealth funds are most concerned about such investment opportunities. In terms of investment regions, respondents are most optimistic about climate-related investments in Africa, the Americas and Europe, and hope to participate in the market through direct investment.
In terms of challenges encountered in climate investment, 75% of respondents selected data availability and required asset management companies to increase the transparency of information disclosure. Recruiting the right talent and finding investment opportunities occupy the second and third spots respectively.
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