Large institutional investors with exposure to all sectors are inflicting costs on themselves through the impact that their carbon-heavy investments have on the rest of their holdings. A new report from the Institute for Energy Economics and Financial Analysis (IEEFA) shows that universal owners – asset owners who are so big they have no choice but to have exposure to all sectors in the economy – have a fiduciary duty to consider carbon costs across their holdings through what it calls “systemically adjusted” investment models. The IEEFA took Norway’s Government Pension Fund Global (GPFG), one of the world’s largest asset owners with assets under management of around $1.6 trillion, as an example. Examining its holdings across five major polluters – BP, ExxonMobil, Shell, BHP and Rio Tinto – and looking at the effect these companies’ emissions had on the rest of the economy, the IEEFA found that they cost the oil fund 0.36% in “performance drag” per year. “The GPFG example illustrates how universal owners should be looking to urgently adopt more explicit beta-protectionist policies as part of their fiduciary duty,” said Alasdair Docherty, author of the report and Sustainable Finance and Data Analyst at the IEEFA. “But prioritising strategies that effect change in the market will require buy-in from stakeholders.”
