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Most money managers ignore climate risk to profit

Bloomberg
In a survey of asset managers, almost three quarters said they don't take into account global warming when analyzing a company, Ceres, whose investors have $8.5 trillion under management, said today in a report. Almost half said climate change isn't relevant to their investment decisions.

In a survey of asset managers, almost three quarters said they don't take into account global warming when analyzing a company, Ceres, whose investors have $8.5 trillion under management, said today in a report. Almost half said climate change isn't relevant to their investment decisions.

Pension funds, governments and private institutional investors are beginning to ask asset managers to include climate risk in their due diligence, according to the report. U.S. regulators are trying to make it easier for shareholders to seek information on environmental risks, and are giving “serious consideration” to requiring that companies disclose more about how global warming may hurt profits, Ceres said.

“The subprime meltdown was about ignoring risk,” Mindy Lubber, president of Boston-based Ceres, said in an interview. “We're at the early stages of integrating climate risk and other sustainability risk into financial management.”

Efforts to stem climate change may increase costs for companies that emit high levels of carbon dioxide, such as utilities and oil refiners, said Alexis Krajeski, associate director of governance and sustainable investment at F&C Asset Management Plc, which oversees the oldest U.K. investment fund. Krajeski meets with officials from corporations such as Irving, Texas-based Exxon Mobil Corp., the biggest U.S. oil company, to help formulate strategies to respond to global warming.

Role to Play

“Have they estimated where climate change will impact their business most significantly?” Krajeski said in an interview. “As an owner, we have a role to play in encouraging the company to prepare.”

Developed nations must cut emissions 25 percent to 40 percent from 1990 levels by 2020 to “stand a chance” of keeping the global temperature within 2 degrees Celsius (3.6 degrees Fahrenheit) of pre-industrial times, the United Nations Intergovernmental Panel on Climate Change has said.

Without curbs, temperatures could rise by 6 degrees Celsius, an increase that “would lead almost certainly lead to massive climatic change,” the International Energy Agency, an adviser to 28 oil-consuming nations, said in a report.

Ceres sent questions to the 500 managers overseeing the most assets, as listed by the 2008 Pensions and Investments Survey. Eighty-four with $8.6 trillion under management completed the questionnaire.

‘Significant Exposure'

Of those responding, 71 percent said they don't assess climate risk when they aren't marketing an environmentally sensitive fund, according to the report. While half of the money managers said some industries have “significant exposure” to climate risks, 47 percent of those said they don't analyze climate risks or opportunities.

In October, the Securities and Exchange Commission issued guidance that will make it easier for investors to seek information on climate-change risks through shareholder resolutions, according to the report. Lubber said she expects action soon on a request to the SEC for guidance on how companies should disclose the information.

The U.S. Congress is debating legislation that would cap carbon dioxide emissions from utilities, refineries and manufacturers. Action from the SEC and Congress will send “honest market signals” that will change company behavior, Lubber said.

“As soon as we see robust disclosure, we're going to see this reflected in share prices,” Lubber said.

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