Investing for a Safe Climate?

Abstract

Climate change is now widely recognised as a source of financial risk for institutional investors like superannuation funds, which may manifest as reduced asset values and investment returns. Investors are also facing increasing pressure to play a constructive role in society’s response to climate change by aligning portfolios to the 2015 Paris Agreement on Climate Change. This article presents an empirical study of current and emerging climate-related investment practices in Australia, underpinned by an analysis of the legal, regulatory and theoretical frameworks in which investment decision-making takes place. While the study confirms that approaches to climate risk assessment and management are rapidly evolving, it also suggests that integrating climate considerations into investment decision-making and adopting responsible investment practices to manage climate-related risks is not encouraged by existing legal frameworks and dominant, mainstream approaches to investment. There remain considerable legal and practical barriers to aligning investment decision-making with the Paris Agreement.