It is based on a survey of 300 senior professionals at asset-owner institutions and advisors around the world, including pension funds, insurers, endowments, foundations, central banks, sovereign wealth funds, and consultants.
UK asset owners are more climate-focused than other regions – 76% say fighting climate change is one of their fund’s strategic objectives – and lead the way on transition finance adoption with 24% using the approach. Part of the reason for this is that UK asset owners do not believe that climate-related investing leads to lower returns (29%) as much as other regions, such as North America (44%) and Southern Africa (52%).
UK asset owners also appear to be driven by more than risk-return profiles, with a higher-than-average proportion (65%) saying that financial institutions have a responsibility to provide investment capital to fund the decarbonisation of high emitters.
They are also more likely to believe that without greater investment in transition finance assets, the world will not be able to meet the Paris Agreement climate-change goals.
The only area of concern for the UK is that transition finance adoption slows down. Of all the regions, the UK has the lowest proportion of asset managers that say they are likely to invest in transition finance in the next 12 months.
The leading barrier for UK asset owners could be part of the reason for this: significantly more than average (38%) say that there are not enough companies with credible, realistic and feasible transition plans. Developing a wider pool of investable transition finance opportunities is therefore a key driver of future transition finance growth.
When it comes to generating real-world impact through transition finance, adoption rates vary. Transition Finance Leaders are actively using transition finance as part of climate-related strategies, Transition Finance Laggards are not.
Real-world impact: The rise of transition finance
‘Green’ strategies, such as ESG-branded assets, are designed to have small carbon footprints. In some cases though, this means they are avoiding carbon-intensive industries, rather than taking meaningful steps to help lower emissions. Transition finance is about real-world impact.
How pension funds enable transition finance
Listen to an exclusive interview with Brunel Pension Partnership’s chief responsible investment officer, Faith Ward, and portfolio manager, Daniel Spencer as they discuss how asset owners can enable vital transitions while remaining true to their fiduciary duties.
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