Australia’s largest investment consulting firm is calling on its clients to factor climate change into major investment decisions, warning that it poses a “significant risk” to returns.
JANA believes that current policies on climate change will have a seriously detrimental impact on investments – but three-quarters of clients JANA surveyed would make no change to their investment allocations if the Australian government decided not to alter its policy on climate change, even though a majority believed the government should take more action on the issue.
Slightly more than half of JANA’s clients reported that the recent bushfire crisis had no impact on their views of climate change. Half of all responses were from super funds, with portfolios ranging from under $1 billion to more than $30 billion.
“We expect climate change and climate-related transition and physical risks to impact on future investment returns,” said JANA head of responsible investment research Tim Conly. “The financial risks associated with climate change have immediate implications for investment governance and process, and will become more influential on investment strategy over time.
“Investors should integrate climate change considerations into their governance frameworks, investment decisions and monitoring activities. This includes looking to target investments that would benefit from the transition to a low-carbon economy.”
JANA’s research also includes modelling prepared in conjunction with specialist researcher Climate Insight. Scenarios produced include the “Stated Policy Scenario”, which anticipates limited global policy co-ordination and the continuation of currently announced policies, equating to a 3 degree increase in global temperatures.
The Sustainable Policy Scenario is a more aggressive policy response and emissions technology developments, which would limit the long-term temperature rise to 1.8 degrees.
“The physical and transition risks of climate change are expected to have a significant negative influence on investment returns over time, but the Stated Policies Scenario is worse from an investment perspective,” said Dr Danyelle Guyatt. “The cost of doing nothing is projected to be greater in the [long-term].
“This reinforces a need for portfolio diversification to build resilience across a range of climate-related scenarios.”
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