As growing numbers of institutional investors address the climate-related risks in their investment portfolios, they are driven to act by risk management goals, financial returns and regulatory mandates. For those that have not yet taken steps to address the long-term risks they face, here are some reasons to do so:
• Yngve Slyngstad, CEO of Norges Bank Investment Management, which runs Norway’s Government Pension Fund Global, says that the mandate to manage the sovereign wealth fund clearly stipulates that the fund’s main driver is financial return. “Given the premise that it’s very long-term, we are now looking at sustainable business models,” he says.
• Storebrand Group is another asset manager which believes that sustainability is a prerequisite for securing long-term financial results. “To understand the risks and the opportunities that companies are facing over the long term is vital to making good investment decisions,” says CEO Odd Arild Grefstad. “And we believe that, over time, our sustainability research will contribute to higher quality and also positive returns.”
• Increasingly, says Philippe Desfossés, CEO of French pension fund Établissement de Retraite Additionnel de la Fonction Publique (ERAFP), asset managers may be called to account for not incorporating sustainability into the management of their portfolios, “because now it has really been made obvious that carbon is a risk, and it’s a risk for business,” he says. In case of legal dispute, he points out: “It’s now very difficult for anyone to say ‘Oh, I didn’t know it was a risk’.”
• In some cases, investment management mandates stipulate that funds must be managed with sustainability in mind but without sacrificing financial returns—especially in public pension funds. “We are regulated by law, and the law says that we should allocate capital on a 30-40-year horizon,” explains Mats Andersson, CEO of Swedish public pension fund Fjärde AP-fonden (AP4). “The law also states that we should take sustainability into account without giving up returns.”
