South Korea's biggest state pension fund has signed up to join the Asia Investor Group on Climate Change (AIGCC), joining Singapore sovereign wealth fund GIC and other large asset owners, with more expected to follow suit. These moves signal a fast-rising focus on environmental risks among the region's most influential investors.

While the National Pension Service (NPS) has signed up, the $650 billion pension fund will be keeping a relatively low profile for now, said AIGCC's executive director Rebecca Mikula-Wright. "They are at a different point in the process, while GIC are happy to talk more openly about their activity," she told AsianInvestor.

Nonetheless, NPS's participation is likely to encourage other Korean pensions and institutional investors to get involved.

Liew Tzu Mi, GIC

Meanwhile, GIC announced yesterday that it had become a signatory to three organisations and initiatives focused on with climate change management – CDP, Climate Action 100+ and AIGCC – as part of its strategy to increase engagement and disclosure on climate risks and opportunities.

"That’s significant because it sends a really strong signal to the market," said Mikula-Wright. "If a fund of GIC's size is joining AIGCC and Climate Action – which is about engaging with companies in the region – it sends a clear signal to companies in their portfolios that 'this is what we want you to do and we’ll be working with other investors'."

The strength of the AIGCC initiative in Asia, she added, is that it partners Asian investors and links them with global investors.

Elsewhere in Asia Pacific, AustralianSuper, the country's biggest superannuation fund, is a member of AIGCC, and State Street Global Advisors has just today unveiled its participation in Climate Action 100+.

There is still widespread scepticism and dissatisfaction among asset owners on whether fund managers are making good on claims they trumpet about their sustainable investment credentials. Firms such as BlackRock, State Street and Vanguard have been called out on instances of their failings and apparent hypocrisy in this regard.

GATHERING MOMENTUM

But growing scrutiny of said managers, as well as of investee companies, by large institutional clients is likely to encourage improvements on this front. 

Liew Tzu Mi, ​chief investment officer for fixed income at GIC and chair of its sustainability committee, said in the fund's statement: ​“Climate change is one of the defining issues of our era. As a long-term investor, we seek to ensure our portfolio companies are aligned with the transition to a more sustainable path.

“Where we identify companies exposed to greater physical or transition risks arising from climate change, we aim to engage with those companies to discuss and offer support for their plans to mitigate or transition from those risks.”

GIC is also the first sovereign fund to sign up to Climate Action 100+, the largest global investor initiative on climate, which now has $52 trillion under collective management by its signatories.

Rebecca Mikula-Wright,
AIGCC

In February this year, GIC became a supporter of the efforts by the Task Force for Climate-related Financial Disclosures (TCFD) to develop an internationally accepted framework on climate reporting.

Liew noted that the TCFD recommendations provided companies with clear guidance on the material environmental metrics they should measure, monitor and disclose.

"Its database of disclosures by companies and cities provides investors with consistent, timely and financially relevant climate change-related metrics," she said. "Taken together, these tools help to enhance the focus and quality of investors’ dialogues with companies on their climate risk mitigation measures."

As a result, “we are witnessing a rapid increase in investor understanding and activity on climate risk across Asia, which is translating into deeper engagement with companies, to ensure they are preparing for the low-carbon transition", Liew said in Monday's statement.

Meanwhile, NPS reportedly said in November that it planned to boost its environmental, social and corporate (ESG) governance-related investment to W500 trillion ($452 billion) by 2024. 

Japan's Government Pension Investment Fund (GPIF) is a notable member of Climate Action 100+, despite the fact that it cannot engage directly with investee companies, because of its size and structure. Instead, they ask all their external fund managers to join up, or engage with companies using similar requests as the Climate Action group.

In its 2020 sustainability report GPIF said it had undertaken scenario analysis and found that its portfolio would be 17% better off if the Paris Agreement target to limit the global temperature increase to 1.5 degrees Celsius were met.

"That's hugely significant," said Mikula-Wright. "Even though they are constrained by what they can and can’t say, just because of their size that sends a strong signal. And this was before Japan made its 'net zero by 2050' announcement."

STATE STREET SIGNS UP

Meanwhile, State Street Global Advisors, with some $3 trillion in assets under management, has become the third global fund house to come on board with AIGCC this year, after BlackRock and Invesco.

A total of 167 companies are engaged through Climate Action 100+, according to AIGCC. The focus list includes ‘systemically important emitters’, accounting for two-thirds of annual global industrial greenhouse emissions.

So far 120 companies have nominated a board member or board committee with explicit responsibility for the oversight of climate change. Fifty companies have indicated they will aim to achieve net-zero emissions by 2050 or sooner.