The year 2020 proved historic for investor action on climate change.
In March, three of the asset class’s biggest investors published a joint statement urging sceptics that continue to question the growing role of sustainability to face reality.
California State Teachers’ Retirement System, Japan’s Government Pension Investment Fund and UK’s USS Investment Management warned that focusing solely on short-term returns without considering other stakeholders would be to ignore “potentially catastrophic systemic risks”. Instead, the pensions – representing nearly $2 trillion of AUM between them – called for enhanced disclosures under the framework of the Task Force on Climate-related Financial Disclosure.
Taking it even further, the three pensions said, “asset managers that only focus on short-term, explicitly financial measures, and ignore longer-term sustainability-related risks and opportunities are not attractive partners for us”.
For GPIF, private equity managers are in the best position to execute asset owners’ long-term efforts, former CIO Hiromichi Mizuno told Private Equity International in 2019. He noted that private equity has best governance among asset classes, since “GPs own the company and make sure the executives will always act in the interest of shareholders”.
There’s no denying that the devastating bush fires in Australia followed by the onset of the covid-19 pandemic have been a powerful driver underpinning this change.
As such, regulators and asset owners are increasingly calling for climate action, while asset managers are broadening their remit beyond energy-intensive industries such as oil.
In November, the Australian Sustainable Finance Initiative, an alliance of 80 financial institutions and investors, published its first roadmap to creating a sustainable financial system to support the transition of the Australian economy to net-zero emissions by 2050. Participants in the initiative include superannuation funds, such as Aware Super, AustralianSuper and Cbus, as well as asset managers AMP Capital, IFM Investors and QIC.
Meanwhile, Ardian, The Carlyle Group, Global Infrastructure Partners, Macquarie Infrastructure and Real Assets, and SoftBank Investment Advisers have created the One Planet Private Equity Funds group. Their goal is to “advance the understanding of climate-related risks and opportunities within our investment portfolios so that we can build better and more sustainable businesses”.
Asset owners, given their ability to drive and incentivise meaningful changes, are on the edge of fundamentally reshaping finance. According to PEI’s LP Perspectives 2021, 41 percent of respondents agree GPs are taking climate change risks seriously enough in their own investment practices, while just under a quarter disagree.