Fund giant Aberdeen Standard Investments has branded its industry “asleep” to climate-based threats, and revealed it has moved £500m of its flagship Gars fund into renewables in the last six months.
Climate change protests brought parts of London to a standstill this week as Extinction Rebellion group campaigners blocked roads and bridges in a bid to highlight the threats posed by global warming.
At an event in the capital, Craig MacKenzie, head of strategic asset allocation at Aberdeen Standard, which invests £500bn worldwide, said fund managers needed to “wake up” to a coming decade where returns from renewables will grow 10pc a year, and oil prices are forecast to collapse.
He said: “We don’t have all the answers today but we have the shape of the story. We’re going to have very dramatic growth in global power generation by renewables, doubling in the next 10 years, with earnings growth of 10pc a year, the best of any sector.
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“Peak oil demand is forecast for the late 2020s and we could see a dramatic fall in oil prices after that date. We are having the debate internally about when we start writing down the value of the oil and gas sector.”
The leading FTSE100 index is made up of around 15pc oil and gas companies, leaving many investors heavily exposed to such a price drop.
On Wednesday (9 October) Aberdeen Standard flexed its considerable clout as a 3.2pc shareholder in one of them, BHP, the mining, metals and petroleum company, to pressure it to end its relationships with anti-environmental lobby groups.
Bill Hartnett, stewardship director at Aberdeen Standard Investments said BHP needed to ensure its activities were in “full alignment” with its “stated commitment to the goals of the Paris climate change agreement and the transition to a net zero carbon economy”.
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He added: “Failure to implement effective governance of its industry group lobbying activities serves to undermine the integrity of BHP’s climate leadership position and causes damage to its reputation.”
Eva Cairns, environmental, social and governance (ESG) investment analyst at Aberdeen Standard, said climate change risks are now a factor when considering investing in any business.
“These risks need to be part of every investment decision. We need to understand what companies are doing to manage their exposure to climate risk, disruption to suppliers and customers, particularly for high emitting companies.”
She said from the first quarter of next year Aberdeen Standard will be measuring its success as an ESG investor using the Task Force on Climate-related Financial Disclosures (TCFD) reporting framework.
This is a voluntary, consistent climate-related financial risk disclosure for use by companies to provide information to investors, lenders, insurers, and other stakeholders.
Mr MacKenzie said the shift away from the oil and gas sector among insurers and pension funds is beginning, partly out of investment necessity since the financial crisis of 2008.
“For the last 100 years the strategy was to invest 60pc in equities then make a cyclical shift into bonds. But the yield fall in 10 year gilts following the financial crisis means you’re not going to get a strong positive return of 5pc from your gilt portfolio.
“So you’re trying to find other diversifiers with a good return, and one of them is renewables infrastructure. Ten per cent of our strategic portfolios are now invested in this. And I think we’re going to see more of that.”