Climate change is a future priority for 85% of investors

As many as 85% of global asset managers believe that climate change will be a central issue in two years’ time, up from 75% a year ago, according to the 2023 Robeco Global Climate Survey. The survey incorporates the views of 300 asset owners from around the world with assets under management (AUM) of over $27 trillion, and for the first time, includes a South African perspective offered by Sanlam. While most investors surveyed remain committed to net-zero carbon emissions by 2050, around half admitted to reviewing their sustainable investing approach last year to take advantage of a sharp rise in energy prices.

Sustainable investing facing headwinds
Tackling climate change remains a major challenge – with the conflict between Russia and Ukraine and the energy crisis it triggered – being front of mind for many investors, reports the latest Robeco Global Climate Survey. Other headwinds to achieving a just transition to low-carbon economies include a backlash to ESG (environmental, social and governance) investing in the US, tightening of EU regulations and a lack of suitable data and expertise in this field.

The data gathered over the past three years suggests that a minority of investors are proving hard to mobilise to take action on climate change, says Victor Verberk, CIO of Fixed Income and Sustainability at Robeco, an international asset manager which is a world leader in sustainable investing. “Given the Covid pandemic, rising inflation and interest rates, and increasing geopolitical turbulence, it is hardly surprising that investor action on climate change is not a smooth, linear process,” he says.

The sharp rise in energy prices caused by supply constraints and Russia’s invasion of Ukraine last year prompted 47% of investors to review their approach to ESG investing by permitting higher allocations to oil and gas companies. But this appears to be a temporary disruption rather than a long-term trend, the report says. For just over half of investors (51%), the energy crisis has reinforced the importance of the shift to a low-carbon economy based on renewable energy, while only a quarter (25%) say that they have paused or slowed down their portfolio decarbonisation work as a result of the energy crisis.

Commitment to take action on climate change
Despite these obstacles, there is much to celebrate, says Verberk. “The results from our third climate survey demonstrate that investors are keeping the faith and moving forward with a sense of purpose,” he says. He mentions several positive trends, such as an increased interest in biodiversity investing and the growing importance of social issues surrounding a just transition from fossil fuels to renewable energy.

The survey found that 48% of investors have made, or are in the process of making, a commitment to the net zero carbon emissions goal of the UN by 2050. “Investors in general are clearly aware of the risks of climate change,” Verberk comments, “and are integrating climate considerations into their investment policies.”

A ‘Just Transition’ is now a significant part of the global sustainability agenda
In South Africa and other emerging economies, the sustainability movement has progressed further to incorporate more than just environmental impact considerations; it appears that investors are now taking into account and attaching much more importance to the closely-related issue of the ‘just transition’ discussion, which is covered in the survey for the first time. Also for the first time, Robeco incorporated a unique South African perspective – offered by Sanlam. Chief Sustainability Officer at Sanlam Group, Abel Sakhau, was interviewed specifically on the topic of a just transition and what it means in South Africa in a climate change context.

Sakhau says unlike the US, there is no backlash against transitioning to a low-carbon economy in South Africa, although the government doesn’t have a clear strategy. “There is no single position on what the responsible path for a just energy transition is,” he says. “One also has to consider the mismatch in the time horizons of politicians focused on the next elections and investors looking many years ahead, which can be a source of tension.”

Positive regulatory developments
Despite this, Sakhau believes that the proposed Climate Change Bill, introduced before parliament in February 2022, could have far-reaching repercussions. The bill aims to provide an integrated response to climate change in South Africa and ensure a just transition towards a low-carbon economy. The country faces a unique set of challenges in its just transition, given that nearly 80% of its energy comes from coal and that each job in the coal sector supports up to 10 people. “We are looking forward to new regulations that will streamline the whole process of climate-change action,” Sakhau says. “When we engage with companies, it is not only from a climate-change perspective, but also very much from a socio-economic impact perspective.”

Biodiversity an important issue for investors
One of the latest investment trends which the survey notes is that biodiversity loss is an important factor for investors too. A fifth (21%) of those surveyed in 2021 said that biodiversity was at the centre of, or a significant factor in, their investment policy. This has increased to nearly half (48%) and is projected to increase to two-thirds (66%) in the next two years.

Sakhau believes that climate change and biodiversity loss are inextricably linked. “You can’t tackle one without engaging with the other,” he says. “We participated in the pilot study for the Taskforce on Nature-related Financial Disclosures (TNFD), so we have a good baseline in terms of what the financial risks associated with nature-related issues are and what actions we need to take to integrate ecological considerations into our investment approach.”

The survey concludes by stating that the road to decarbonisation is not linear, with 40% of investors still unsure whether they have sufficient knowledge and tools to enable it to happen. However, it reiterates that the majority of global investment companies are committed to sustainability and that the issues of climate change, biodiversity and a just transition are increasingly becoming mainstream.

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