Sovereign wealth funds have made “substantial progress” addressing climate change, according to a survey by the International Forum of Sovereign Wealth Funds and the One Planet Sovereign Wealth Funds.
Building on an inaugural 2020 survey of 34 sovereign wealth funds representing 43% of the world’s sovereign funds, this year’s IFSWF-OPSWF Climate Change Survey found that sovereign wealth funds have become more systematic about dealing with climate change.
In 2020, only 24% of survey respondents incorporated ESG considerations in their investment process, only 18% had a dedicated ESG team and 48% said they did not take a systematic approach to climate change.
One year later, 71% of respondents said they have adopted an ESG approach, while less than 10% did not consider climate change in their investment approach.
The 2021 survey was sent to 46 sovereign wealth funds, with 34 responding. That represents 42% of the world’s 81 sovereign wealth funds and more than 90% of the $5.75 trillion in sovereign wealth funds’ total assets, according to the IFSWF database.
The 2021 survey concentrated on the practical challenges of integrating and implementing climate change into the investment process, and the opportunities from asset allocation changes.
According to the 2021 survey report, this past year saw sovereign wealth funds rapidly expanding their use of five different methods for assessing climate-related risks and opportunities and managing and reducing their climate impact. The survey found that 34% of respondents have assessed the carbon footprint of their portfolios, up from 23% last year, and 31% now use climate-scenario analysis, up from 17% one year ago, for example.
While only 9% of respondents are mandated to address climate change, they survey found that 65% are proactively adopting measures. For the sovereign wealth funds surveyed, 50% said it was the right thing to do, while 23% thought it would boost returns and 27% thought it would reduce risks to their portfolios.