Australian asset owners are more likely to have developed a risk framework around climate change issues than their North American or European counterparts, according to a survey by Mercer.
In Australia, 69 per cent of asset owners have developed a formal or informal framework for identifying climate risk, while in North America and Europe about 50 per cent of asset owners have done so.
Australian investors are also more active in using quantitative data in investment analysis and valuation processes, while their European and North American peers rely more on qualitative data.
The greater adoption of a climate change risk framework is partly the result of the recent adoption of the Clean Energy Future policy by the government, which includes the carbon pricing mechanism.
"The debate around the carbon price has raised this issue for investors and while the carbon signal at this stage of this survey wasn't particularly material, it still represents a way of thinking about the portfolio going forward," Mercer Asia-Pacific head of responsible investing Helga Birgden said.
At the time of the survey, the legislation had not yet been introduced and it was likely there would be further adoption of climate change risk management procedures in future reports, Birgden said.
"The carbon price is a capital markets price signal to investors and it is one that is quantifiable and it exists, so it could be one of the drivers," she said.
The survey also found climate change monitoring had spread to other asset classes than listed assets.
"The unlisted space does require the longer-term view by the investor, and the super funds and pension funds are in the position to be serious about the long-term growth," Birgden said.
"That is where the unlisted space has proved to be more attractive as more is understood about the way the climate change theme is going to play out."
Mercer highlighted the recent activities of AMP Capital, HESTA and Local Government Super (LGS) in the survey.
Last year, HESTA awarded an investment in a carbon-tilted index fund.
It seeded a low-carbon equities strategy managed by Industry Funds Management with an initial investment of $100 million.
The aim of this strategy is to track the return of the underlying S&P/ASX 200 Index, but with a carbon footprint that is 50 per cent lower than the index.
AMP Capital had invested in the infrastructure asset class since the late 1980s and was recognised as a global leader in sustainability consideration across both its mainstream and specialist funds, Mercer said.
Climate change risks are considered throughout the entire life cycle of the investment process of AMP Capital's infrastructure portfolio, from identification of new investment opportunities to the active management of assets.
LGS was a leading Australian asset owner in the area of sustainable and responsible investment, Mercer said.
The super fund's selection process includes an assessment of how potential external asset managers incorporate environmental, social and governance (ESG) risks, of which climate change has been identified as the most important environmental risk, into their investment processes.
The investment manager is asked to specify the resources available to analyse ESG risks, including personnel and their expertise, and their use of any external research services.
Upon selection, external asset managers are contractually obligated via investment management agreements to consider ESG issues.
