(Originally posted in Impact Alpha on April 22, 2016 here)
Leaders of more than 150 countries will gather at the UN today to sign the historic climate accord reached in Paris last December.
But it’s going to take more than speeches or even treaties (which won’t go into effect until at least 2018, if not 2020) to move the billions, nay trillions, of dollars of investment capital needed to realize the agreement’s goals.
In the latest Returns on Investment podcast from ImpactAlpha, Manuel Lewin, head of responsible investment for Zurich Insurance Group, says it’s not enough just to demand that private investors provide capital for green projects. Institutional investors such as insurance companies, pension funds and sovereign wealth funds direct something like $70 trillion in assets, and they need better tools and metrics to both assess climate risks and measure climate outcomes.
Integrating climate concerns into Zurich’s $200 billion in assets, spread across 500 portfolios in three dozen companies, is far from simple, Lewin says.
We caught up with Lewin after reading his post-Paris article, “Addressing climate change: Don’t ask investors for money, give them data and tools.”
He argued that institutional investors such as Zurich need climate-friendly investments that match their overall portfolio allocations. In Zurich’s case, that means about 30 percent in safe assets such as government bonds, 50 percent in slightly higher-risk fixed income instruments, five percent in equities, and so on.
More far-reaching, however, will be the integration of climate-risk across the entire portfolio. “Climate change is likely to impact most, if not every single type of investment one way or another,” he wrote. “Putting a price-tag on the full breadth of climate change-related risk will, over time, prompt those who seek to raise capital in the market to make the necessary investments into mitigation and resilience for their institutions.”
In our interview, Lewin took a deep dive into the real world of institutional investment management to emphasize how far we still have to go to get meaningful climate action, and to urge us all to build the tools needed to get us there faster.