The AODP Global Climate 500 Index rates the world’s 500 biggest asset owners – pension funds, insurers, sovereign wealth funds, foundations and endowments – on their success at managing climate risk within their portfolios, based on direct disclosures and publicly available information. Asset owners are scored on three key capabilities: Engagement, Risk Management and Low-Carbon Investment. They are graded from AAA to D while those with no evidence of action are rated X. This year AODP has raised the bar, requiring greater evidence of action and no longer giving credit purely for transparency or commitments.
The Asset Owners Disclosure Project (AODP) is an independent global not-for-profit organization that recognizes the specific financial risk attributes of climate change. AODP has developed the world’s leading reporting framework for institutional investors encompassing the disclosure and management of climate risk.
Climate change poses a double threat to the insurance industry. It faces mounting costs from claims relating to the physical impacts of climate change and knock-on events such as the disruption of global supply chains. At the same time, the investment portfolios that enable it to meet claims are themselves exposed to climate risks in the transition to the low-carbon economy.
Climate risk is now a mainstream issue for institutional investors. The FSB has set up a task force chaired by former New York Mayor Michael Bloomberg which will make recommendations to the G20 on how asset owners, the companies they invest in and financial intermediaries should report the potential impact of climate change on their bottom line. The global commitment to limit climate change to two degrees also presents asset owners with new opportunities. Financing the de-carbonization of an economy is a major opportunity for insurers as long-term investors.
Insurers are way behind pension funds in protecting their portfolios from climate risk. Only one in eight is taking tangible action compared with one in four pension funds.
This special report focuses on 116 insurers with $15.3 trillion of investments and compares their performance with 324 pension funds with $15.9 trillion. These two groups account for over 80% of the $38 trillion of assets covered by the Index.
The Index identifies 31 asset owners who are leaders in managing climate risk, rated A+. They include 26 pension funds, but just one insurer, Aviva. Across the Index just 14 insurers, one in eight, are taking tangible action to manage climate risk in their portfolios, rated C+, compared with one in four pension funds.