Institutional investors are risk averse, time-poor and “carbon and climate fatigued”, making it difficult to generate interest in environmentally-orientated investing, according to a leading investment consultant.
However, Will Oulton, head of responsible investment at Mercer in London, told this week’s Climate Finance 2010 conference that the current “grim picture” could be set to improve, as investors shift from “de-risking” to positioning for growth, and as they move to implement commitments to various sustainability-focused investor initiatives.
“We’ve lost of couple of years,” Oulton said. “Typical clients, since 2008, have been going through a de-risking process ... To talk about [environmental investments], it’s been a difficult task to get on anyone’s agenda.”
For example, he said that, over the last two years, Mercer in Europe has done no more than five manager searches for new mandates in the clean-tech investment space.
“There’s not a great deal of interest from our clients in putting money at risk, whether it’s clean-tech, green investing or shades of carbon. For many schemes, there’s a real sense of carbon and climate fatigue.”
In terms of responsible investment, “there are only around 35 to 40 pension schemes globally driving the agenda forward. A huge number of schemes have done very little.”
This could present an opportunity, he said, as a large number of institutional investors have recently signed up to initiatives such as the UN-backed Principles for Responsible Investment, which require signatories to integrate environmental, social and governance (ESG) considerations into their investment processes.
“They are now in the implementation phase, they are asking ‘What do we do about it?’,” he said.
He also added that investors are starting to position themselves to take advantage of growth opportunities, which would fit well with environmental or sustainability-orientated strategies.
However, he identified a number of barriers to institutional investors embracing environmental investing.
Pension funds, in particular, are “time poor”, with trustees barely spending an hour a year considering non-financial issues such as ESG. “The narrative needs to be clear and succinct,” he said.
He added that trustees’ level of knowledge about the sector is very low. The argument about “long-term growth around environmental markets – many don’t get it,” he said. Mercer is working with the International Finance Corporation, the Carbon Trust and a number of sovereign wealth funds on a piece of research that will attempt to set out the case, “as clearly as possible”, for realigning portfolios in the face of environmental risks, he added.
Finally, he said there is a lack of “two-way communication”, with pension funds facing little pressure from their beneficiaries to respond to environmental imperatives.
By. Mark Nicholls
Source: Environmental Finance