More than half of European pension funds – 54% – are considering the impact of climate-change risks in their investment allocations, up from 14% in 2019.

Mercer’s latest European asset allocation insights report, which surveyed more than 900 funds, also found that 89% of pension schemes were considering environmental, social and governance (ESG) risks to their investments. Only 55% of funds did so in 2019.

Spectacular wildfires, made worse by climate change, have ravaged Australia and Brazil in the past 12 months, yet the reason for pension funds’ change of heart was more prosaic: 85% said they were assessing what climate change will do to their investments because regulators made them do it.

The report, published on 26 August, also revealed that 40% of schemes cited mitigating reputational damage as one of their reasons for considering climate-change risks. Another 51% said that the financial damage to investment returns from climate change was their motivation for examining the risks. Just 29% of pension funds cited the financial risks in 2019.

 The statistics were collected from Mercer’s institutional client base during the fourth quarter of 2019 and the first quarter of 2020, surveying 927 institutional investor clients in 12 countries with more than €1.1tn in assets under management.

“To enable long-term mindset changes however, investors must realise the value for themselves,” said Jo Holden, European Director of Strategic research at Mercer, in a statement. “We can see this awareness emerging as more schemes and company sponsors witness how ESG risks in their portfolios may impact investment returns and how the company and scheme is perceived by the public.”

Beyond ESG-related investing, the annual study also found that investors are diversifying their portfolios and protecting themselves against market volatility by increasing allocations to growth fixed income, real assets and private equity, which have seen 10%, 4% and 6% increases respectively.

By virtue of when the research was carried out, it did not take into account the impact of Covid-19.

 Source: Private Equity News

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