LONDON- Risks don’t come much longer term than climate change, so you might expect sovereign wealth funds to be all over it, as investment giants with decades in their sights.
Yet the world’s biggest SWFs are making only patchy progress in adapting investment plans to account for environmental, social and governance factors, according to data on energy investments, an ESG analysis of the equity holdings of some of the funds, plus a survey of the players.
Such data provide snapshots into the complex and often opaque world of sovereign funds, which collectively hold nearly $8 trillion in assets.
The industry has invested $7.2 billion in renewable energy since 2015, for example, less than a third of the amount poured into oil and gas, data from the International Forum of Sovereign Wealth Funds (IFSWF) showed.
The Antipodean funds, which publicly disclose their investments, scored highly in the ESG analysis of major corporate holdings. New Zealand also said it planned to cut the emissions intensity of its overall portfolio by 40 percent by 2025, referring to a measure of emissions proportional to revenue.
Middle Eastern funds face a tougher task to decarbonize their portfolios, given their economies’ longstanding reliance on fossil fuels. They did not disclose climate targets, although most are planning to beef up their ESG focus.
The Reuters survey showed a divergence in funds’ broad approaches to companies with poor ESG ratings; Hong Kong Monetary Authority’s fund (HKMA) and Singapore’s GIC prefer to try to drive change from within, while the Antipodean and Norwegian funds are more prepared to twin that approach with excluding stocks.
Any failure or lag in future-proofing portfolios could threaten the long-term performance of SWFs, established to safeguard wealth for generations to come and to buttress state revenues, according to many investment specialists.
And given the funds are some of the world’s biggest investors, their ESG positions can affect how quickly corporations put their businesses on a more sustainable footing, the experts say.
