New Report! Are Asia’s Pension Funds Ready For Climate Change?
by China Water Risk 11 April, 2019
11th April 2019 – CWR, Manulife Asset Management and Asia Investor Group on Climate Change (AIGCC) co-author a brief on imminent threats to asset owners’ portfolios from climate and water risks, titled “Are Asia’s Pension Funds Ready For Climate Change?”
Climate change is multiplying risks for investors in Asia as we head for a 3°C world, with serious, severe impacts on water resources. Investment portfolios of Asian asset owners are uniquely exposed due to their high domestic investment concentration, putting the continent’s savings at risk, says the new report.
The report highlights that Asian pension funds already face shortfalls due to an ageing population, and that this could be exacerbated by water and climate risks to their investments.
Investors in Asian assets may not be fully aware of such interlinked risks. To better navigate the new risk landscape, the report identifies five key water and climate risks to illustrate how the portfolios of Asian asset owners might be affected. These include the impact on logistics from rising sea levels and storm surges; increasing risks from extreme weather events affecting dense areas and regulatory risk triggered by waternomic policies.
According to the report, the Nikkei 225 and KOSPI are particularly vulnerable to logistics and supply chain disruptions, whilst the Hang Seng Index and Straits Times Index are skewed towards financial institutions, which are prone to systemic shocks from clustered risks arising from lending to multiple sectors in concentrated locations.
However, big risks come with big opportunities. The report’s analysis of 1.5°C, 2°C and 3°C temperature change scenarios shows that while Asia is more exposed than the rest of the world to policy risk, it also has the greatest opportunity to benefit from low-carbon transition technologies.
Some governments are already regulating for a future with limited water, such as China. If the economy runs on water, less water points to a new development model.
Asian asset owners can lead the way: their actions can have significant impacts with the ratio of asset owners’ domestic investments to country GDP as high as 25-45% according to the report.
|“Asia’s water resources face a triple threat – not enough water to develop; climate change exacerbating water scarcity and our assets and populations are clustered along vulnerable rivers… if these threats are not factored in, Asian banks and insurers may well inherit the water and climate risks of their clients.”
Debra Tan, Director of China Water Risk
|“Asian asset owners are uniquely exposed to climate and water risks as a large share of their investment portfolios tend to be concentrated in their domestic markets, which will bear the brunt of global climate change losses.”
Emily Chew, Global Head of ESG Research & Integration at Manulife Asset Management
|“If Asian pension funds and other asset owners start to act on their water and climate risks, it would lead to improved resilience and better outcomes in their investment portfolios. In addition to strengthening returns, this would also ultimately benefit all communities in the region.”
Rebecca Mikula-Wright, Director of Asia Investor Group on Climate Change (AIGCC)