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Climate Change Threatens Retirement Savings

Investment funds may be exposing their investors to future losses by mismanaging climate risk



Katrina Tuliao/Wikimedia Commons

LONDON – The Asset Owners Disclosure Project asked 1,000 of the world's largest asset owners what they were doing to guard against the possibility that their investments in fossil fuels could, in future, become worthless.

Together, the owners manage more than $70 trillion. The Project found that only 27 of the 458 investment funds replying to its request are addressing climate risk at what it considers a responsible level.

Only five of the 458 achieved the AODP's top score, AAA. An additional 22 rated A or above. Only these groups, says the Project, "will survive a carbon crash in any kind of good shape."

Of the responding asset owners, 80 percent are either D rated (abysmal) or X rated (doing nothing). Funds not responding did not receive a rating.

"A majority of the world's investment industry are clearly acting contrary to the interests of those whose money they represent – this is an outrageous situation" says Sharan Burrow, an AODP board member and general secretary of the International Trade Union Confederation.

"It must be remembered that much of the money being held by these organisations is the product of workers' lifelong savings."

The survey looked at several categories of investment behaviour, including transparency, risk management and low carbon investment. Asset owners examined came from 63 countries, in all regions of the world.

Those the AODP approached included more than 800 pension funds, 80 insurance companies, 50 sovereign wealth funds and 30 foundations or endowments. The survey findings are published in the Project's second Global Climate Investment Index.

The risk to investors from climate change is that a stringent and effective global agreement on reducing greenhouse gas emissions – which does not yet exist – would mean massive amounts of coal, oil and gas reserves, listed as assets by energy and mining companies, would have to be left in the ground.

As a consequence, the value of investments in those companies would fall sharply which, among other things, would lead to considerably lower levels of retirement savings for individual stakeholders.

While the AODP says many investment funds are threatening investors with potentially massive losses through exposure to climate risks, it believes the Index shows the world's investment system can drive the transition to a low carbon economy.

Julian Poulter, the executive director of AODP, said: "While we can see some leaders emerging, many haven't acknowledged their dangerous and foolhardy addiction to investments riddled with climate risk, let alone checked themselves into rehab."

But he added: "What is clear is that the world has an investment system capable of driving the low carbon transition – If all the funds we surveyed had a triple AAA rating, we would be well advanced on meeting the global climate challenge upon us."

Alex Kirby is an editor of Climate News Network, a journalism news service delivering news and commentary about climate change for free to media outlets worldwide.

This article originally appeared at The Daily Climate, the climate change news source published by Environmental Health Sciences, a nonprofit media company.

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