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| APRA's Geoff Summerhayes is putting pressure on companies to protect themselves and their customers against the risk of climate change. Jessica Hromas |
A CFS survey of more than 75 of its global and domestic investment managers found less than half (45 per cent) believe climate change is an investment risk, with less than 20 per cent measuring the carbon footprint of their portfolios. None are using carbon prices in valuing companies.
Scott Tully, head of investments at CFS, which manages $87 billion on behalf of nearly 1 million superannuation fund clients, said the findings were "lower" than the wealth manager had hoped.
"We've now got to assess [and ask] 'what are they doing about it?' It is a process where we might remove managers, not because we think they're not doing the right thing, but because they're not identifying risks which we think are material to portfolios," he told The Australian Financial Review.
This comes as the prudential regulator last year outlined plans for an industry-wide review of climate-related disclosure, warning insurers, superannuation funds and banks they place their "futures in jeopardy" by ignoring risks related to climate change.
"Increasingly, APRA will expect more sophisticated answers, especially from well-resourced and complex entities," said Australian Prudential Regulation Authority executive director Geoff Summerhayes in November.
"APRA intends to gain insights in areas such as how exposed regulated entities are to physical, transitional and liability risks, and whether they're taking steps to protect themselves and their customers."
As part of its survey CFS spoke to big-name funds such as the world's largest asset manager, BlackRock, State Street, Fidelity Investments, T. Rowe Price and Perpetual, as well as smaller funds including Solaris Investment Management, Greencape Capital, Kardinia Capital and Kapstream Capital.
"Broadly speaking global managers have the time and resources to dedicate to thinking about these issues, and tend to be further along the path than a small cap, Australian manager that's only got a few people on the investment team," Mr Tully said, not referring to any particular fund.
"A small manager could probably get up to speed very quickly. I just don't think there has been the wherewithal to do so. And part of our engagement would be with those managers, [to determine] what is stopping them from doing it."
'A lot of the companies are changing'
BlackRock, which manages $US6 trillion ($7.7 trillion) in assets, in December wrote to 120 companies requesting that they begin to more clearly report what may be the climate risks to their business, according to a Bloomberg report.
Despite this Mr Tully said investment managers as a group are "lagging", adding there was a need for greater transparency and more evidence of integration.
The survey identified that measuring and monitoring ESG (Environmental, Social and Governance) and climate change risks in portfolio construction, risk management and reporting phases of the investment process, was global best practice – yet most respondents are yet to integrate to this level.
"A lot of the responsible investing, or ESG or climate risk are changing at the company level … a lot of the companies are changing. There's a little bit of a gap where the investment managers haven't quite cottoned onto the fact members have higher expectations," he said.
Last year the Financial Stability Board's Task Force on Climate-related Financial Disclosures, recommended scenario analysis should be used by companies to model the impact of different assumptions about climate change and climate policy on their business.
The CFS survey also looked what its superannuation fund members expected from fund managers, with 70 per cent saying investment managers should exclude companies that use child labour and 60 per cent expecting tobacco producers to be excluded.
"Our surveys have identified that the investment industry has made significant progress, however more is required to align investment manager considerations with customer expectations," said Mr Tully.
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