Benno Klingenberg-Timm, Head of Global Sovereign Markets APAC spoke with the Sovereign Wealth Fund Institute (SWFI) on climate change and how sovereign wealth funds should invest through and beyond disruption. More
The integration of climate risk into the management of assets has just started and will only accelerate in the future. It remains for fundamental issues of independence and neutrality to be addressed, and changes to the investment organization and investment frameworks can be substantial.
Looking forward, how will central banks realistically address these issues? The results of our RMS survey hint that most prefer to implement (or, in many cases, have already implemented) a comprehensive ESG framework with the help of established data providers. In such frameworks, climate risk will be an important factor, but by no means the only one, and the ultimate ranking of investments will be determined by a large variety of factors, ranging from Corporate Governance to cybercrime prevention to employee equality and energy savings.
It remains to be seen whether, over the coming years, this will be convincing enough for politicians and supervisory bodies, which will continue to "feel the heat" with every extreme weather event that will trigger media coverage and protests by the next generation of voters.
We strongly advise all public institutions to take the impact of climate risk on their own operations seriously and act proactively.
Our findings are informed in part by the results of the 25th Reserve Management Seminar survey (RMS survey) :
- When asked for the key reason why central banks should specifically consider climate risk in their investment portfolio, 62% indicated a fiduciary duty towards the general public as key motivation. This orientation towards a higher, common good as a main driver to consider climate risk is an important differencing factor for central banks and sovereign institutions in general. It can however also mean that central banks could be exposed to additional pressure to consider climate risk in their investment portfolio.
- Regarding the question if central banks are were willing to tolerate a decrease in performance when it comes to considering climate risk in their investment portfolio, 53% of participants indicated that they would only tolerate lower returns if the respective benchmark is changed as well so that relative performance is not affected. Still, 28% of respondents are willing to take a performance hit even without benchmark changes.
Perspectives matter. Tune in to our insights.
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