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    Real Assets: The Physical Risks Blindspot

    Stockholm (NordSIP) – According to a new survey of global real asset investors by Macquarie Asset Management, despite ESG continuing to climb to the top of investor agendas, most investors are still struggling to provide in-depth integration of climate risks into their investment portfolios.

    The report surveyed 180 global institutional real assets investors, including asset managers, banks, consultants and investment advisors, foundations and endowments, insurance companies, and pension funds, who combined represent more than $US21 trillion of assets under management.

    “While the results of the survey highlight the progress the institutional investment community has made in incorporating ESG factors into their investment approach, our survey also highlights the many challenges such investors continue to face in better understanding and managing how physical and transition risks posed by climate change may impact their investment portfolios. This is not a straightforward process given the diverse nature of most portfolios, which means asset owners and asset managers will play a key role in supporting investors as they seek to identify, assess, and manage both existing and emerging ESG risks and opportunities,” said Phil Peters, Head of Macquarie Asset Management’s Client Solutions Group.

    The Good – More Integration

    According to the survey real asset investors from Europe, Australia and New Zealand are the most advanced in integrating climate risks in their portfolios, although investors in Asia and the Americas appear to be on track to catch up.

    ESG factors are also integrated into analysis, disclosures and asset allocation. The percentage of responding firms with a dedicated ESG function has risen from 47% to 59% since Macquarie Asset Management’s last survey in 2019.

    Respondents also acknowledged that the importance of ESG in asset allocation is set to continue to increase. This focus on ESG is set to intensify, with 89% of respondents indicating that they expect to increase their focus on ESG over the next two years.

    Most respondents also reportedly believe that positive sustainability strategy can improve financial returns. 82% of respondents say they intend to increase commitments to investment strategies that integrate sustainability practices and 77% expect to do the same for products or managers that target specific ESG outcomes.

    The Bad – Physical and transition climate risks

    However, the survey’s results echo for global real asset investors the findings of the ECB for European Banks published in November. While early steps have been taken, climate change mitigation preparation remain shallow.

    While more than half of responding investors selected climate change as their primary ESG concern, only 47% currently track some or all of their portfolio emissions, and 46% generally do not address physical and transition climate risks in their investment portfolios. Only 35% of responding investors have committed to align their investment portfolios with net-zero by 2050.

     

    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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