GLOBAL - Continued delay in climate change policy action and lack of international coordination could cost institutional investors trillions of dollars over the coming decades, according to research released by Mercer and a group of global investors with around $2trn (€1.47trn) in assets under management.

The report 'Climate Change Scenarios - Implications for Strategic Asset Allocation' analyses the potential financial impacts of climate change on investors' portfolios, identified through a series of four climate change scenarios playing out to 2030.

In the report, a framework is outlined that can be used by institutional investors to enhance their understanding of climate-related investment risks and opportunities across asset classes and regions.

Mercer's TIP Framework estimates the rate of investment into low-carbon technologies (T), the impacts (I) on the physical environment and the implied cost of carbon resulting from global policy (P) developments across four climate scenarios.
 
Some of the key findings show that by 2030:

Climate change increases uncertainty for long-term institutional investors and as such needs to be proactively managed Investment opportunities in low-carbon technologies could reach $5trn (€3.7trn) The cost of impacts on the physical environment, health and food security could exceed $4trn Climate change-related policy changes could increase the cost of carbon emissions by as much as $8trn Increasing allocation to climate-sensitive assets will help to mitigate risks and capture new opportunities Engagement with policy makers is crucial for institutional investors to proactively manage the potential costs of delayed and poorly co-coordinated climate policy action Policy developments at the country level will produce new investment opportunities, as well as risks that need to be monitored continually The EU and China/East Asia are set to lead investment in low-carbon technology and efficiency improvements over the coming decades
 
The launch of the report and the Mercer TIP Framework represents a collaborative endeavour led by Mercer involving 14 global institutional investors.

These include AP1 (Sweden), APG (Netherlands), AustralianSuper (Australia), British Columbia Investment Management Corporation (Canada), British Telecom Pension Scheme (UK), CalPERS (US), CalSTRS (US), Environment Agency Pension Scheme (UK), Government of Singapore Investment Corporation (Singapore), Maryland State Retirement and Pension System (US), Norwegian Government Pension Fund, Ontario Municipal Employees Retirement System (Canada), PGGM (Netherlands) and VicSuper Pty Ltd (Australia).

The International Finance Corporation, a member of the World Bank Group, and the Carbon Trust supported the project.

Howard Pearce, head of environmental finance and pension fund management at the UK's Environment Agency pension funds, said: "All pension funds will need to adopt a climate change-proofed financial investment strategy in the future to enable them to fulfil their fiduciary duties.

"We also want our pensioners to retire into a similar environment than we enjoy today and not one that is affected by the extremes of climate change that could reduce their life expectancy."

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