22
Sep 2008 - Sovereign wealth funds could
and should focus more attention on the investment
risks as well as opportunities of the carbon-constrained
economies of the future, an Innovest report
commissioned by WWF-Norway has found.
Fund management in the
21st century was submitted to the Norwegian
government as recommendations for future
governance of the world’s second largest
sovereign wealth fund, the $US 381 billion
Norway Global Pension Fund.
“Sovereign wealth funds
can incorporate climate risk considerations
directly and systematically into their actual
stock selection and portfolio construction
processes,” the study said.
“It is at this level
that investors can send the strongest message
to companies, produce significantly changed
company behaviour, and, most importantly,
improve their long-term, risk-adjusted returns.”
The analysis found that
funds using socially responsible investment
through positive screening strategies and
using their influence as large investors
to encourage improved company behavior enhanced
investor returns, risk management and reputation.
Report lead-author Karina
Wong, senior consultant at Innovest, said
“Socially responsible investment can no
longer be seen as a purely ethical exercise
that reduces profit while doing good.
“Rather, in an increasingly
resource restricted world sustainable business
models are a crucial indicator for long-term
profitability and risk reduction.”
In particular, Innovest’s
analysis showed that better company management
of carbon issues translates into better
investment performance globally (more than
3 per cent greater return annually).
This relationship was
even more pronounced for Scandinavian companies,
which are seen as leaders in dealing with
carbon issues, where the difference in investment
performance between leading and lagging
companies was more than 11 per cent annually.
The report found that
sovereign wealth funds including Norway’s
Global Pension Fund lagged behind public
pension funds such as ABP in the Netherlands
and CalPERS in the United States, primarily
because they do not apply best practices
for positive screening and pursue targeted
environmental investments.
“Loaded with petroleum
cash, Norway has a special responsibility
to invest in low carbon development and
help mitigate impacts from global warming
on hundreds of millions of the world’s poor,”
said Rasmus Hansson, CEO of WWF-Norway.
“The Norwegian Government
is currently revising the ethical guidelines
for the fund and now has a unique opportunity
to introduce more progressive instruments
for sustainable investment, such as positive
screening and a climate technology investment
fund.”
Dennis Pamlin, global
policy advisor in WWF, said “Institutional
asset managers today control more than 80%
of investments in the world and must play
a proactive role in supporting companies
that can become winners in a low-carbon
economy, not just disinvesting from those
that are unsustainable.”
But he said there were
promising signs, for instance with China’s
sovereign wealth fund CIC’s recently announcment
that it will invest in environment-friendly
technologies.
“WWF will now
explore the possibilities for the world’s
largest sovereign wealth fund’s, Norway,
UAE, Saudi Arabia, Singapore, Kuwait and
China, to take a lead in implementing and
developing further the investment practices
and tools needed for low carbon development
in the 21st Century.”