Macquarie climate risk concerns raised week after Green Investment Bank deal

Macquarie Bank has been singled out in a new report for its “below average” score on addressing climate risk, less than a week after it confirmed its acquisition of the Government’s Green Investment Bank in a £2.3bn deal.

The Asset Owners Disclosure Project has graded the largest asset managers and asset owners – sovereign wealth funds, insurers, pensions and endowments – on protecting their portfolios from the material risks of climate change.

Australia’s Macquarie is rated a “bystander” with a D grade, meaning it provides only limited disclosure on financial implications of climate change in investments.

The report says the bank’s poor ranking was “cause for concern” given its recent acquisition of the Government’s green infrastructure bank.

However, Macquarie has hit back at the criticism arguing it has been penalised for non participation in the AODP survey.

The report assesses the world’s 50 largest asset managers through a survey on governance and strategy, portfolio risk management and metrics and targets. Companies that do not participate in the survey are assessed on publicly available information.

In a statement the bank said it rejects any suggestion it does not recognise the financial risks of climate change.

“As a significant global asset manager, Macquarie is fully committed to ensuring environmental risks are identified and managed responsibly in our business activities and relationships, and each member of staff shares the responsibility for identifying and managing these risks as part of normal business practice.

“As one of the world’s largest investors in renewable energy, having invested or arranged over $A14 billion into renewable energy projects since 2010, Macquarie is particularly aware of the opportunities and responsibilities that will continue to accompany the transition to a low-carbon economy.”

Fixed income specialist Insight Investments was the only UK asset manager to receive a D grade and has admitted that they did not engage with the AODP on the survey but plan to do so for the next report.

Insight ESG analyst Joshua Kendall says the results were not a reflection of the asset manager’s work on climate risk. He noted that unlike equity investors who are much more focused on upside, as fixed income investors they are particularly focused on risk, including climate risk and stranded assets.

The asset manager’s 2016 report says it received an A rating from the PRI.

Elsewhere in the AODP report, LGIM received an AA grade, the second highest ranking of asset managers worldwide behind Dutch firm APG Asset Management, which has a rating of AAA. Europe was the strongest region when it came to disclosing climate risk.

Aviva Investors, M&G Investments and Schroders all received a rating of BBB.

D is not the lowest score, however, as three asset managers based in the US – Fidelity Investments, Affiliated Managers Group, and New York Life Investment Management ­– received a rating of X, meaning they do not engage in climate risk protection at all.

AODP chief executive Julian Poulter says: “Climate change is becoming a central part of risk management around the world, and will transcend short-term political setbacks such as moves by the Trump administration in the US to roll back action on climate change.

“Once investors adopt prudent risk management practices they will not unlearn them.”

This year is the first the report has included asset managers in its assessment alongside asset owners.

It found asset managers were more proactive on addressing climate risks with 94 per cent taking some form of action. Among asset owners this figure was just 60 per cent.

Julian Poulter says: “It is shocking that many pension funds and insurers are still ignoring climate risk and gambling with the savings and financial security of millions of people.

“As the number of these laggards falls, their exposure to market repricing grows significantly higher and a time may be approaching when it is too late to avoid portfolio losses.”

The Tesco Pension Scheme is one of five UK pension funds ignoring climate change, putting customers’ retirement savings at risk, alongside Lloyds Banking Group Staff Pension Plans, HSBC Holdings Staff Pension Plans and Rolls-Royce Group plc Pension Funds.