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Preparing for the Storm?

UK fund managers and the risks & opportunities of climate change

ShareAction Report (October 2009)

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Against a background of public debate on how to rebuild financial systems to manage the risks that will cause the next financial crisis, this report looks at a sector that controls majority shareholdings in the UK's largest companies, giving it the power to stimulate - or suppress - efforts to future-proof our companies, investments and economy against the physical, regulatory and financial impacts of climate change, while also promoting environmental sustainability.

This report is the result of research carried out in summer 2009, using responses from 39 of the largest fund management companies operating in the UK, together managing an estimated £6 trillion. Researchers looked at the attitudes, action and accountability of fund managers in relation to the risks and opportunities of climate change.

Key findings

  • The importance of climate change is recognised by fund managers, but action is suppressed by short-term analysis and lack of client demand.
  • Significant differences in the extent that different fund managers are taking action to anticipate climate change.
  • Differing views are held by fund managers on which sectors require action to manage climate change.
  • Strong fund manager support for mandatory emissions reporting and reduction.
  • Fund managers' reporting on climate change risks and opportunities is disappointing.

ShareAction's recommendations include:

  • Fund managers say that "lack of client demand" is a key factor suppressing action on climate change. This means that investors need to send clear instructions to fund managers that the risks and opportunities associated with climate change should be managed. Fund manager's clients should also consider ability to manage climate change when selecting fund managers.
  • Forthcoming guidance from the government will encourage companies to do report on their exposure to climate change risks and action taken to reduce this exposure. Policymakers and regulators should introduce smart regulation to ensure public of investors' climate change risks and reduction plans. Policymakers should also note the clear appetite from investors for a mandatory reporting and reduction requirements for companies.
  • As the effects of climate change become increasingly apparent, fund managers should take steps to analyse and manage longer term trends (such as expected future carbon prices) in anticipation of clients' increasing assertiveness about their longer-term interests, and as a means of rebuilding client and public confidence in themselves and the financial services sector.
  • Some fund managers are already using climate change criteria in stock selection decisions. This trend can reasonably be expected to increase, and suggests that companies should view their policies and actions in anticipation of the financial impacts of climate change as a key factor in attracting or deterring investors.

The research was endorsed by asset owners and other stakeholders (Church Investors Group, Environment Agency Active Pension Fund, Esmée Fairbairn Foundation, Friends Provident Foundation, Joseph Rowntree Foundation, Local Authority Pension Fund Forum (representing 49 pension funds), Oxfam GB, Polden Puckham Foundation, Strathclyde Pension Fund, WWF UK).

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