Climate change: Tools for investors

As one of the world’s largest institutional investors, Allianz is supporting a research project designed to make climate risks measurable for investors. The project was unveiled at the annual conference of the UN Principles for Responsible Investment, which have also been signed by Allianz. The project is being led by Mercer Consulting and involves institutional investors from across the globe, accounting for combined assets under management of USD 1,500 billion. An interview with Karsten Löffler, CEO, Allianz Climate Solutions.

Karsten Löffler: We want to collect information from studies on climate change so that we can use it for our strategic asset allocation into the appropriate asset classes such as bonds, equities or real estate.

What impact is climate change having on investments? And how much of an impact can investors have on climate change?

Investors put their money into companies. Depending on the sector, these companies can be affected by climate change, for example if certain areas of the economy are subject to more stringent regulation or if the physical impact of climate change has an impact on economic activity. However, there are also additional investment opportunities in areas like renewable energy. In order to be able to recognize and assess these mostly medium to long-term market changes,  we need clear, ideally quantifiable, information.

Our aim is to collect this sort of information from studies on climate change so that we can use it for our strategic asset allocation into the appropriate asset classes such as bonds, equities or real estate. This is an important first step towards including scientific and regulatory findings on climate change into the investment process. If we are successful with the exercise, this approach could well become a standard tool for investors.

This project turns climate-adverse CO₂ into a measurable cost and investment factor. Companies which want to remain attractive to investors have to become climate-friendly.

How can Allianz apply the findings from the project?

We contribute to the project with our perspective as an investor and financial services provider in order to apply the findings to our company. One crucial aspect will be to ensure that there is a seamless connection between the results of the project and the specific risk models applied internally.

What do investors expect from the planned international climate agreement in 2015?

The necessary regulatory framework should be set by a global climate protection agreement in Paris at the end of 2015. This would provide much more transparency for investment decisions. For example, by highlighting the link between successful investments and measures to counteract climate change more clearly, particularly with regards to CO₂-intensive sectors.

A high-profile expert panel recently concluded that investment decisions made in three areas over the course of the next 15 years – namely, cities, land use and energy systems – will be of critical importance to achieve the climate targets. As a result, 350 institutional investors from around the world are calling for swift progress in setting the political framework.

Within this context, we must not forget that technological developments – for example, the considerable reduction in costs associated with renewable energy, the trend towards a less centralized electricity market and the increase in exploration costs for fossil fuels – will also have a crucial impact on the competitiveness of CO₂-intensive sectors. This is why financial institutions, irrespective of the political situation, are now focusing more on these issues.