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AODP Global Climate Index2012 Results


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AODP Global Climate Index:2012 Results

December 2012

Acknowledgements

The Asset Owners Disclosure Project gives special thanks to Lynda McCarthy and Craig McBurnie and also to Phil

Andrews, Janina Beckmann, Robert Boddeutsch, Patrick Brouchet, Merry Chandra, Steve Chow, Nicholas Chui

Cheng Lam, Lucas de Moncuit, Vivien de Rmy de Courcelles, Matthew Deegan, Genevieve Dennis, Aliou Diarra,

Laura Ealing, Eric Feng, Megan Flynn, Joanna Horsley, Diana Hourani, Candice Jin, Matt Johnson, Isolde

Kamerman, Olivia Kember, Fabian Kolb, Anthony Krithinakis, Maryan Lee, Jie Li, Jon Louth, Kathryn Manton, HughMartin, Lekki Maze, Gabrielle McKinnon, Shiva Mehrabi, Manisha Nanda, Victor Ng, Les Owen, Paul Perry, Laas

Petersen, Sonya Rand, Tom Roberts, Marco Sepulveda, Ella Shannon, Khushboo Singh, Suhi Sivanathan, Fiona

Skewes, Doreen Sofi Langat, Kristina Stefanova, Cheryl Tan, Kirsten Tanner, Nicole Turner, Kerry Utting, Susanne

Waegner, Lee Wang Goh, Marcela Whitehead, Alex Wong, Andrew Wu, Ivan Yan and other AODP staff and Board

members. The views in this report remain those of AODP.

Report

The cover image was taken by Michael Hall, Creative Fellow of The Climate Institute. It is of

theMVPasha Bulker, which became stranded on a beach in Newcastle, Australia, after being

caught in a major storm on 8 June 2007. The ship was empty of cargo at the time, waiting to

load 58,000 tonnes of coal. This asset was stranded for nearly a month before it was able to

be re-floated and moved to a safe location for major repairs.


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About the Asset Owners Disclosure Project........................ 4

Introduction............................... 5

Key Findings.... 9

Regional Spotlight - Americas... 13

Regional Spotlight - Asia-Pacific.. 15

Regional Spotlight - Europe....... 17

Regional Spotlight Middle East/Africa. 19

Conclusion.. 21

Contents


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The Asset Owners Disclosure Project (AODP) isan independent not-for-profit global organisationwhose objective is to protect superannuation andpension fund members' retirement savings fromthe risks posed by climate change. It does this by

improving the level of disclosure and industry bestpractice.

The AODP has grown from a pilot program withThe Climate Institute (Australia) and has a Boardof senior leaders from investment, business, tradeunion, political, academic and communitybackgrounds.

For this project, asset owners are understood aspension and superannuation funds, insurancecompanies, endowments and foundations, and

sovereign wealth funds, or SWFs. These assetowners are typically tasked with managinginvestments for the medium to longer term, oftenup to 20 years for pension funds.

The project undertakes the worlds onlyindependent examination of asset ownersmanagement of climate risks and opportunities. Itprovides valuable research and tools to assetowners to support them in the transition to aninvestment world in which the impacts of climatechange will become ever more integrated into their

core decision-making processes.

The data collected provides asset owners (andtheir stakeholders, members and beneficiaries)with valuable insight into the strategies deployedby some of the largest asset owners in the worldin relation to climate change. The initiativeencourages funds to engage in climate change-related issues, often for the first time.

The survey is sent to the worlds 1,000 largestasset owners.

The survey comprises approximately 45 multiplechoice questions covering the five main areas ofan asset owners operations and investments, asoutlined below.

Transparency/ The degree to which fundsdisclose and share information with the AODPand the general public.

Low-carbon investment/ The extent of anylow-carbon investments held by the fund.

Active ownership / How actively fundsengage with investee companies, including theuse or support of shareholder resolutions,engagement strategies, proxy voting, etc.

Risk management/ Whether funds aremeasuring, monitoring or managing climatechange risks.

Investment chain alignment / The adoptionby funds of structural mechanisms to helpmanage climate change risks includingmandate structure, incentive alignment, etc.

Data is sourced from public information as well asdisclosures that funds provide through the survey.The data is analysed and ratings are applied to allfunds.

Funds are awarded "disclosure" points and"performance" points.

Disclosure / Points awarded for each questionthe fund responds to as well as for makingtheir response publicly available.

Performance / Points awarded forimplementing elements of climate change bestpractice.

This report provides the results from worlds firstindependently managed survey and ranking offunds with respect to climate change capability.

About the AODP


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Climate change represents a unique challenge toasset owners and their ability to manage global,cross-sectoral, systemic risks. It demands changemanagement across every function of a fund.

Many asset owners have already acknowledgedthe need to build capacity and challenge traditionalindustry practices in order to manage climatechange. However, there has so far been littleinformation to inform the market on whatconstitutes best practice let alone to enableconsumers to differentiate between funds.

It is against this background that AODP operatesits Global Climate Index, so that stakeholders of allkinds, including the beneficiaries themselves, cansee which funds are leading and which are lagging- providing data that is critical to the efficientoperation of the market.

Why are the asset owners so

important?

As the diagram below shows, asset owners arethe highest institutional point of the investmentchain.

The capital flow starts with beneficiarystakeholders (whether pension members,sovereign states or insurance customers) whoprovide the top level capital to the asset owners.The asset owners then typically allocate themoney to their fund managers to invest on theirbehalf.

Introduction

Its all about the asset owners


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While asset owners are commonly responsible forinvesting over the long-term (often upwards of 20years for pension funds), they typically incentivisetheir fund managers over a much shorter timehorizon of about three years, producing a hugedisconnect between the (long-term) interests oftheir beneficiaries and the (short-term) rewardspaid to the fund managers.

The experience of the sub-prime crisis, increasingglobalisation and market interconnectivity,together with the rising prominence of naturalresource depletion and global issues such asclimate change, have made many question theability of asset owners to manage systemic risks.However, only asset owners can take a high level,portfolio-wide view of these risks and drive thenecessary structural change to manage these

longer term investment risks.

Only asset owners, as universal owners -investors that are exposed to the entire globaleconomy by virtue of their diversified investments- are motivated to look beyond short-term gains ifthey yield long-term consequences.

Why is climate change unique for

asset owners?

In the main, long-term socio-economic or geo-political risks are difficult to account for in thetypically short-term focused investment world.Investors often struggle to quantify how systemicrisks like climate change might impact theirinvestment decisions and, more often than not,take the view that they will unfold slowly enoughfor their investments to adapt.

Climate change is different. For the first time in theinvestment world, we have a risk that is not onlylong-term and high-impact, but also highly certain.

Late 2012s Superstorm Sandy highlighted theunpredictability of extreme weather events. Butthe physics of heat trapping gases warmingoceans, increasing atmospheric moisture andchanging weather patterns ensures climatechange impacts will occur, that they will bedramatic and they will occur over a long period oftime.

Furthermore, the data around the cost ofmitigating climate change risk is fairly wellunderstood. There are credible estimates of how

much it will cost to keep us to a targeted climatewarming of no more than 2 degrees Celsius abovepre-industrial levels through the work of Lord

Nicholas Stern, the International Energy Agencyand others. Therefore, we know broadly the levelsof carbon pricing required to facilitate this change.

For particular sectors and assets we can,therefore, estimate the financial impact of suchdirect regulation or even the intrinsic impact of

other equivalent factors and measures producingthe same low-carbon economic outcomes.

For an asset owner, it boils down to what chancethey think there is that a transition to a low-carboneconomy will occur.

Thus, an analysis of the probabilities andoutcomes of pathways to the low carbon economycreates the necessary approach to calculating theexpected value of the risks that is, theregulatory, industrial and technological changes

that will reduce the value of high carbon assetsand raise the value of low-carbon assets.

If the assets that emit greenhouse gases wereshort in life, then it would not be such a challenge.But the bad news for asset owners is that mostassets that emit greenhouse gas have a long life,often 25 years or more. These include powerstations, mining and fossil fuel extractioninfrastructure, and manufacturing plants. If youcould build, operate and then decommission ahigh carbon power station within a couple ofyears, then a smooth transition to the low-carboneconomy would be easier, save the vestedinterests of the companies that run the industry.As it currently stands, these vested interests havevery little incentive to mothball or completely shutdown capital-intensive operations that are onlypartway through their expected lifespan.

Why is managing climate risk

difficult for asset owners?

It is estimated that less than 2 per cent1 of atypical asset owners portfolio is invested in low-carbon assets such as renewable energyinfrastructure, renewable energy equipmentmanufacturers and energy efficiency companies.That is compared to an average of over 55 percent of a portfolio being invested in high carbonassets or sectors greatly exposed to climatechange physical impacts and climate change-

1Investing in Climate Change 2010 - A Strategic Asset AllocationPerspective, January 2010 (Deutsche Bank,http://www.dbcca.com/dbcca/EN/_media/InvestingInClimateChange2010.pdf)


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related regulation. That is, not only oil and gascompanies but also the banks that finance themand the manufacturers that rely on the continuedsupply of their output.

The scale and breadth of climate change acrosssectors and asset classes means that three out of

the four methods of managing risk within aportfolio are not available.

As universal investors investors that areexposed to the entire global economy by virtue oftheir diversified investments asset ownerscannot avoidclimate change.

They also cannot insureagainst climate change.Whilst certain elements of physical risk, such asflood risk can be insured against, there is currentlyno way of insuring a diversified portfolio against all

physical risks or against all of the other impacts ofclimate change such as product obsolescence andwidespread asset devaluation.

Nor can they furtherdiversifytheir portfolios awayfrom climate change. As universal owners, theyare exposed to the impacts of climate change inall regions, asset classes and industries.

The only realistic method for asset owners tomanage climate risk is to hedgetheir portfoliosto invest in low-carbon assets so that when carbon

is re-priced, either directly or indirectly, thedestruction of value in their high carboninvestments is offset by an increase in value intheir low-carbon investments.

This allocation to low-carbon investments currentlycreates problems for asset owners.

First, many heavily rely on their asset consultantsto define their capital allocations which sectorsof the economy that will be invested in and withhow much of the portfolio.

While these consultants have shown theyrecognise the risks posed by climate change, theydo not yet appear to have translated this to beingable to manage the risks posed by climate changeor its opportunities. A notable exception being thework by leading global asset consultant Mercerin particular theirClimate Change Scenariosreport, which suggested that up to 40 per cent of a

portfolio should be invested in climate sensitiveassets in order to manage climate change risk.2

Second, there is a disconnect between the long-term interests of members, stakeholders andbeneficiaries versus the short-term nature of theinvestment chain.

The recent sub-prime crisis, which the worldsfinancial markets are still reeling from, was a greatillustration of systemic risk unraveling. Ask anyasset owner if in hindsight it would have liked ahedging strategy against the US housing marketgiven their exposure. Any asset owners wouldrespond positively. The same bubble is currentlybeing created in our investment portfolios in termsof unmanaged climate change-related risks andthe inevitable convergence of climate science andcarbon regulation.

There is growing recognition that climate changerisks pose a similar threat to our investments asdid the sub-prime collapse. This will impact carbonintensive investments and other investmentsexposed to the physical impacts. Just as in thesub-prime crisis. What is unclear is the speed andscale of the changes. This creates an urgent needfor asset owners to manage the uncertainty.

This urgency is further compounded by thepossibility of significant legalrisks in the event offinancial losses caused by climate changeimpacts, both physical and regulatory, for thoseasset owners that fail to act.3 Research by leadinglegal firm Baker & McKenzie has found thattrustees (for example, of pension andsuperannuation funds) understanding of climaterisks was reasonably advanced, but that actiontaken to manage climate risk has been limited.They concluded that this gap betweenunderstanding and action represents a clear legalrisk to trustees.

2Climate Change Scenarios - Implications for Strategic Asset

Allocation, February 2011 (Mercer,http://www.mercer.com/climatechange)3Pension and Superannuation Trustees and Climate Change Report,

October 2012 (Baker & McKenzie,http://www.bakermckenzie.com/BKClimateChangeSuperannuationTrusteesOct12/)


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In July 2012, the AODP sent information requeststo the worlds 1,000 largest asset owners includingover 800 pension and superannuation funds, 80insurance companies, 50 sovereign wealth fundsand 50 foundations/endowments.These organisations collectively have over US$60trillion of funds under management, ranging fromaround US$500 million to US$1.4 trillion each.

The AODP anticipated difficulty in obtainingvoluntary disclosure from an industry renowned forits conservative nature and lack of transparency.The AODP, therefore, used a large team ofanalysts to rate over 300 of the largest assetowners based on publically available information.

Assessments of over 300 funds from publiclyavailable information, combined with responsessubmitted by the asset owners, result in theworlds first league table of funds according totheir climate change capability.

What differentiates a leader from a

laggard?

/DISCLOSURE AND TRANSPARENCY

Leaders are becoming more open about how theyplan to respond to the challenges andopportunities presented by climate change. Asmall number of funds rated quite highly in theIndex without directly responding to theinformation request due to the information madepublicly available about their plans and capability.

Laggards are holding their cards close to theirchest. Not only are they not disclosing theirclimate change capability to the AODP, but they

also do not make this information publiclyavailable to stakeholders and the broadercommunity.

/MEASURING AND MONITORING CLIMATE RISK

While there remains debate about the best way tomeasure climate related risks at the portfolio level,

the leaders are making a start for example,monitoring their portfolios carbon exposurerelative to a benchmark over time and taking stockof the fossil fuel reserves on the balance sheets ofthe companies they invest in.

Laggards do not recognise the need to measurerisk at a portfolio level and/or continue toprocrastinate and wait for a definitive approach tobe decided upon, which may never happen.

/ISSUE LOW CARBON MANDATES AS A HEDGE

Leaders are more likely to have investments in thelow carbon economy whether that is in directinfrastructure,green property or carbon-optimisedequity portfolios.

Laggards remain heavily exposed to carbon-intensive investments and have taken no steps tohedge or protect these investments against asudden increase in either carbon pricing or carbonregulation.

/ACTIVE OWNERSHIP

Leaders have a higher instance of having a proxyvoting policy, making it public and also makingvoting records public.

Laggards often do not have a proxy voting policyand the worst will simply defer to vote in line withmanagement. Some do not vote at all.

Key Findings

2012 Survey Results


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/HAVE A POLICY

Leaders often have sound and integrated policiesregarding climate change risk (sometimes as partof a broader environmental, social andgovernance policy).

Laggards often do not have a policy that makestheir stance on climate change or other ESGissues clear to either internal or externalstakeholders.

/ALIGNING THE INVESTMENT CHAIN

Leaders appear to be making more progress inaligning the interests of their beneficiaries with theremuneration of third party service providers likeasset consultants and fund managers. A good

example of this is longer-term performance-basedmandates with claw-back clauses for periods ofunderperformance.

Laggards have not implemented any changes tothe traditional model of hiring/firing fund managersand therefore continue to have a disconnectbetween the long-term horizon of theirbeneficiaries and the typically short-term horizonof their fund managersthe markets they invest in.

Other key findings

/LAGGARDS

A large proportion of funds appear to be doingnothing at all to specifically address climatechange. Of the 314 funds assessed almost one-third scored zero, with no public information at allregarding efforts to manage climate change-related issues.

Where funds have a policy, there is often no

evidence that this has led to any material deviationfrom existing investment strategies or resulted inany direct attempts to mitigate climate risk in theirportfolios. This leads us to conclude there is aconsiderable degree ofgreenwash within theindustry.

/AUSTRALIA

Australia is clearly a standout performer in theIndex. Disclosure disciplines appear moreembedded in Australia than elsewhere.

Disclosure by those funds has been particularlystrong. There are also a number of individualfunds who rate particularly well based on theirperformance in each of the categories.

/JAPAN

Japans culture of non-disclosure is evident in thereport findings. Banks in Japan are notoriouslyopaque and the surveyed pension funds failed toproduce any meaningful disclosure despite havingthe second largest pension system in the world.

/SWFS AND ENDOWMENTS

Sovereign wealth funds have struggled to makesignificant disclosures around climate changedespite their broader range of stakeholders in theirjurisdictions.

The endowments and foundations also scoredpoorly. Not a single endowment/foundationresponded to the request for information. This may

change as these asset owners are now at thecentre of a 350.org grassroots fossil fueldivestment campaign in the US.

/A LONG WAY TO GO

While the leaders are performing well, there is stilla long way to go before they can be assured thattheir climate change strategies are developedsufficiently enough to manage the risks that itrepresents.

Only South Africas Government EmployeesPension Fund (GEPF) has calculated its exposureto fossil fuel reserves via the balance sheets of itsinvestee companies.

No fund has a seamless database connecting allfund managers to aggregate the data required toassess the overall climate risk at the portfoliolevel.


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/SIZE DOESNT MATTER

The ability of funds to respond to and to buildcapacity around climate change is not affected bysize.

In fact, the number one fund - Local GovernmentSuper in Australia - has only US$6.6 billion undermanagement and is surrounded in the Index bysome very large funds such as GEPF, PFZW,APG Groep, New York State Common RetirementFund and CalPERS.

Interestingly, none of the very largest funds ofover a trillion dollars appear in the top 20 althoughAllianz and UBS do make it to the A-rated and BB-rated categories, respectively.

/CRISIS OF TRANSPARENCY

The AODP received 17 direct responses out of

1,000 funds. Of these only half provided full

responses to the survey with the remainder

submitting only partial responses and/or links to

sections of their website for further information.

Of the 314 asset owners ranked in total, 91 fundshad no public information available to enable anexternal party assess their climate change

capability.

Even the surveys of the newly created GlobalInvestor Coalition on Climate Change - who havemany large funds as members - have struggled toattract private disclosure, let alone publicdisclosure.

Global Climate Index leaders

The AODP website (www.aodproject.net) has thefull league table of these asset owners. The fulltable shows each asset owners location, fundtype, ranking and rating. The table also shows

each asset owners membership (or not) of themain investor-based collaborative initiatives thatare focused on climate change and/or responsibleinvestment:

Carbon Disclosure Project

Principles for Responsible Investment

Global Investor Coalition on Climate Change

We provide this information as a way of monitoringwhether the commitment to these initiatives hasany correlation to how the portfolios are managed,

As well as the AODP Global Climate Index, thereare a number of sub-indices based on region,country and fund type.

We encourage asset owners, governments,regulators, investment managers, assetconsultants and citizen investors to explore theserankings.
http://www.aodproject.net/http://www.aodproject.net/http://www.aodproject.net/http://www.aodproject.net/


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/ FUND NAME / COUNTRY / TYPE / RATING / GICCC / CDP / PRI / RANK

Local Government Super Australia Pension AAA * * * 1

Government Employees Pension Fund South Africa Pension AAA * 2

CareSuper Australia Pension AA * 3

Stichting Pensioenfonds Zorg en Welzijn(PFZW)

Netherlands Pension AA * *4

Cbus Super Australia Pension AA * * * 5

British Columbia Investment

Management CorporationCanada Pension AA * * *

6

APG Groep Netherlands Pension AA * * * 7

VicSuper Australia Pension AA * * * 8

UniSuper Australia Pension AA * * * 9

AustralianSuper Australia Pension AA * * * 10

RBC Royal Bank Canada Pension AA 11

NGS Super Australia Pension

AA

* *=12

Kommunal Landspensjonskasse

(insurance)Norway Insurance AA *

=12

New York State Common Retirement

FundUSA Pension

A *14

CalPERS USA Pension A * * * 15

Amundi France Pension A * * * 16

Church of England Pensions Board United Kingdom Pension A * * * 17

Vision Super Australia Pension A * * 18

BT Super for Life Australia Pension A * * * 19

CalSTRS USA Pension A * * * 20

Hartford Financial Services Group Corp USA Pension A * 21

Allianz SE Germany Insurance A * 22

State Super Australia Pension BBB * * * 23

Munich Re Group Germany Insurance BBB 24

ATP Denmark Pension BBB * * * 25

Temasek Holdings Singapore SWF BBB 26

HESTA Australia Pension BBB * * * 27

UBS AG Switzerland Pension BBB * * * 28

TIAA-CREF USA Pension BBB * * 29

Frsta AP-Fonden Sweden Pension BBB * * 30

Ilmarinen Mutual Pension Insurance

CompanyFinland Pension

BBB * *31

We have provided below a snapshot of the top 10 per cent asset owners in the AODP Global Climate Index


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Context

Over half of the worlds 1,000 largest assetowners are based in the Americas. The UShad the most with 305 asset owners, followedby Canada with 122 and Brazil with 42. TheUS also dominates the Americas region interms of the value of the asset undermanagement.

The Americas region has the lowestconcentration of SWFs and insurancecompanies and has the highest concentrationof pension funds.

Of the 314 asset owners rated, 122 are fromthe Americas.

Key Findings

Excluding the Middle East and Africa (due tothe small sample size), funds in the Americastended to rate the worst in all five categories ofinquiry, with the exclusion of active ownership.

Asset owners in the US are particularly strongin the area of proxy voting and have tended tobe much more active with raising shareholderresolutions, including those related toenvironmental, social and governance issues.

On average, funds in the Americas ratedworse than funds from both the Asia-Pacificand Europe in terms of disclosure andperformance. They were particularly poor interms of disclosure.

Some 7 per cent are a member of one of theglobal investor groups on climate change(average is 9 per cent) and 5 per cent aresignatories to the PRI (average is 12 per cent).

We have provided below a snapshot of the top 10 asset owners in the AODP Americas Climate Index.


British Columbia Investment

Management Corporation

Canada Pension

AA* * 6

RBC Royal Bank Canada Pension AA 11

New York State Common RetirementFund

USA PensionA

* 14

CalPERS USA Pension A * * * 15

CalSTRS USA Pension A * * * 20

Hartford Financial Services Group Corp USA Pension A * 21

TIAA-CREF USA Pension BBB * 29

Service Employees International Union USA Pension BB * * 42

MetLife (insurance) USA Insurance B 51

Canada Pension Plan Canada Pension CCC * * 56

Regional Spotlight

Americas


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Country Indices:

Americas

We have provided below the names of the best

rated asset owners in each of the mainpension/superannuation markets in the Americas

region below, along with their global ranking.

/BRAZIL

Caixa de Previdncia dos Funcionrios doBanco do Brasil (=138th)

Fundao Petrobras de Seguridade Social(Petros) (=166th)

Fundao AMPLA de Seguridade SocialBrasiletros (=216th)

Fundao dos Economirios Federais(=216th)

/CANADA (see table above)/USA (see table above)


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Context

The Asia-Pacific region represents 19 per centof the worlds 1,000 largest asset owners.Australia had the most with 68, followed byJapan with 44 then Hong Kong with 33.

Within the Asia-Pacific region, Japanese assetowners dominate in terms of value of assetsunder management.

Of all the regions, the Asia-Pacific region hasthe lowest concentration of foundations andendowments with only one based in HongKong.

Of the 314 asset owners rated, 68 are from theAsia-Pacific region.

Key Findings

Excluding the Middle East and Africa, funds inthe Asia-Pacific region tended to rate in themiddle of all five categories of inquiry with theexception of active ownership where they

performed worse than funds from both theAmericas and Europe.

Both Asia-Pacific and European funds ratedthe best in terms of disclosure. However, thiswas driven by Australian funds who havebecome well-versed in disclosing during theAODP trial period run out of The ClimateInstitute in Australia during the last threeyears.

The Asia-Pacific region has a high

participation rate in each of the three maincollaborative investment initiatives focused onclimate change and responsibility 30 percent of asset owners are a member of at leastone of these initiatives (average is 25 percent).

Some 14 per cent are a member of one of theglobal investor groups on climate change and18 per cent are signatories to the PRI.

We have provided below a snapshot of the top 10 asset owners in the AODP Asia-Pacific Climate Index.


Local Government Super Australia Pension AAA * * * 1

CareSuper Australia Pension AA * * 3

Cbus Super Australia Pension AA * * * 5

VicSuper Australia Pension AA * * * 8

UniSuper Australia Pension AA * * * 9

AustralianSuper Australia Pension AA * * * 10

NGS Super Australia Pension AA * * * =12

Vision Super Australia Pension A * * 18

BT Super for Life Australia Pension A * * * 19

State Super Australia Pension BBB * * * 23

Regional Spotlight

Asia-Pacific


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Country Indices:

Asia-Pacific


rated asset owners in each of the mainpension/superannuation markets in the Asia-

Pacific region below, along with their global

ranking.

/AUSTRALIA (see table above)

/HONG KONG

No Hong Kong pension funds have beenrated at this stage

/JAPAN

Daiwa Asset Management (107th)

A further 12 Japanese pension fundsranked =224th globally

/SOUTH KOREA

National Pension Service (=220th)


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Context

Europe had the second highest proportion ofasset owners in the worlds 1,000 largest, with28 per cent of all asset owners. The UK hadthe most with 70 asset owners, followed by

Germany with 44 then the Netherlands with36.

Europe tended to dominate the largest of theasset owners overall in terms of value ofassets under management. No single countrydominated although Switzerland, France andNorway have a number of particularly largeasset owners.

Europe had the highest concentration ofinsurance companies in the largest 1,000.

Of the 314 asset owners rated, 112 are fromEurope

Key Findings

European funds tended to rate the best in allfive categories of inquiry.

European funds were especially strong in

terms of active ownership (i.e. proxy votingpolicies, engagement strategies andparticipation in collaborative initiatives) andinvestment chain alignment (i.e. remunerationstructure of fund managers and developinginternal resources).

Europe had the highest participation rate ineach of the three main collaborativeinvestment initiatives focused on climatechange and responsibility a staggering 37per cent of asset owners are a member of at

least one of these initiatives.

Some 15 per cent are a member of one of theglobal investor groups on climate change and21 per cent are signatories to the PRI.

We have provided below a snapshot of the top 10 asset owners in the AODP Europe Climate Index.


Stichting Pensioenfonds Zorg en Welzijn

(PFZW) Netherlands Pension AA * * 4

APG Groep Netherlands Pension AA * * 7

Kommunal Landspensjonskasse

(insurance) Norway Insurance AA =12

Amundi France Pension A * * 16

Church of England Pensions Board United Kingdom Pension A * * 17

Allianz SE Germany Insurance A * * 22

Munich Re Group Germany Insurance BBB * 24

ATP Denmark Pension BBB * * * 25

UBS AG Switzerland Pension BBB * * 28

Frsta AP-Fonden Sweden Pension BBB * * 30

Regional Spotlight

Europe


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Country Indices:

Europe


rated asset owners in each of the mainpension/superannuation markets in the European

region below, along with their global ranking.

/DENMARK

ATP (25th)

PensionDanmark (55th)

Danica Pension (=84th)

Sampension KP Livsforsikring (=84th)/FRANCE

Amundi (16th)

Natixis Global Asset Management (=34th)

Macif Gestion (83rd)

/GERMANY

HypoVereinsbank (32nd)

MEAG Munich Ergo Asset Management

(64th)

Bayerische Versorgungskammer (=140th)

/NETHERLANDS

Stichting Pensioenfonds Zorg en Welzijn(PFZW) (4th)

APG Groep (7th)

Pensioenfonds van de Metalektro (48th)

/NORWAY

Government Pension Fund Norway (=53rd)

Kommunal Landspensjonskasse (pension)(=118th)

/SWEDEN

Frsta AP-Fonden (30th)

SEB (59th)

KPA Pension (60th)

/UNITED KINGDOM

Church of England Pensions Board (17th)

BT Pension Scheme (33rd)

Environment Agency Active Pension fund(=39th)


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Context

Only 37 of the worlds 1,000 largest assetowners are based in the Middle East andAfrica. The UAE has the most with 9, followedby South Africa with 8 then Israel with 4.

The UAE also dominates the region in terms ofthe value of the assets under management.

Of all the regions, this region has the highestconcentration of sovereign wealth funds, ofwhich there are 20.

Of the 314 asset owners rated, 12 are from theMiddle East and Africa.

Key Findings

The Middle East and Africa region performedthe worst although there were two goodperformers in GEPF (Africas largest pension

fund) and Sanlam (financial services group,with a focus on insurance).

GEPF is ranked second globally. Their strongperformance is a reflection of theircommitment to sustainability issues despitethe relative confines of having their portfolio

invested solely in South Arica.

Of the asset owners that didnt respond fewhad any form of information publicly availableregarding their climate change riskmanagement capability.

The Middle East and Africa region had thelowest aggregate participation rate incollaborative investment initiatives that focuson climate change and responsible investing(e.g. GICCC, CDP and PRI).

However, 19 per cent of asset owners aresignatories to the CDP. While this is relativelylow, this is higher than the US where only 14per cent are signatories.

We have provided below a snapshot of the top 12* asset owners in the AODP Middle East and Africa Climate

Index. Only two asset owners, both in South Africa, responded to the disclosure request Government Employees

Pension Fund and Sanlam Group. The others were assessed internally by the AODP team.


Government Employees Pension Fund South Africa Pension AAA * * 2Sanlam Group South Africa Insurance C * * =87

Dubai World UAE SWF D =162

Menora Mivtachim Senior Pension Fund Israel Pension D =181

Abu Dhabi Investment Authority UAE SWF D =224

Investment Corporation of Dubai UAE SWF D =224

Kuwait Investment Authority Kuwait SWF D =224

Libyan Investment Authority Libya SWF D =224

Public Institution for Social Security Kuwait Pension D =224

Qatar Investment Authority Qatar SWF D =224

Revenue Regulation Fund Algeria SWF D =224

SAMA Foreign Holdings Saudi Arabia SWF D =224

Regional Spotlight

Middle East and Africa

* We have provided the top 12 as a number of funds were tied equal 10 within this region.


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Middle East and Africa

There is currently only one country index in the

Middle East and Africa region South Africa ofwhich only one pension/superannuation fund has

thus far responded to the survey. We hope to see

an improvement next year.

Country Indices:


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Our team of analysts have compiled large amountsof data from the survey responses and from ourown internal assessments using publicly availableinformation, but too often this data is unverified andvariable in quality and detail. Thus, there is a crisisof transparency amongst asset owners that mustbe fixed.Governments, regulators and particularly membersof pension funds must take responsibility for drivingthis transparency if we are to ever get some of theworlds largest investors to reveal their strategiesfor climate change how they plan to ensure asmooth transition from the high to the low carboneconomy on behalf of their beneficiaries.

We believe that greater transparency can fuel thedebate we really need regarding the managementof long-term systemic risks such as climatechange.

At this point we are not convinced that a singleasset owner has accurately assessed or managedits climate risk over its entire portfolio ofinvestments.

Even those leaders who are attempting a thematicallocation are often doing so from instinct andsearching for low-carbon opportunities with similarreturn characteristics to their high carboncounterparts. This, of course, belies the crux of theissue as funds are comparing the return hurdles forlow and high carbon assets in an identical manner.

If we accept that there is a reasonable chance wewill see a transition to a low-carbon economy, howbad will the value destruction of investments be? Inthe fossil fuel industry alone there could be seriousimpairments to assets on balance sheets, withsome estimating that only 20 per cent of declaredreserves will be able to be exploited if we are tolimit atmospheric carbon concentration to the safe450 parts-per-million.

In terms of physical impacts, globally, climatechange is already costing an estimated $US1.6trillion per year, expected to rise to over $US4trillion by 2030.4 Damage to infrastructure, whichtypically comprises about 5 per cent of an assetowners portfolio, is the largest single costincurred.5

The transition to the low-carbon economy will nothappen without significant market disruption andvolatility and all portfolios will suffer, although tovarying degrees depending upon whether theyhave been hedged against such an outcome.

We need to ensure our investments are preparednow in order to better survive a carbon crash orcarbon repricing event in the future.

Researching and driving the degree to whichinvestors hedge their portfolios in order to reducethose impacts is a core business task of AODP.

4Climate Vulnerability Monitor: A Guide to the Cold Calculus of a Hot

Planet, DARA and Climate Vulnerable Forum (2nd edn, 2012)(http://daraint.org/climate-vulnerability-monitor/climate-vulnerability-monitor-2012/).5Climate Change Scenarios - Implications for Strategic Asset

Allocation, February 2011 (Mercer,http://www.mercer.com/climatechange)

Conclusions


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Documents

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