Asset managers invest billions for their clients - minimizing risks is one of their top priorities. Andreas Utermann, chief investment officer at the Allianz investment corporation RCM, talks about the risks and opportunities that climate change presents to his business.
 | Andreas UtermannChief investment officer at the Allianz investment corporation RCM: |
Does climate change pose a risk to some investments or is it rather creating opportunities?
Climate change can both present risks and create opportunities for investors. Let's take for example the impact on the insurance industry. If natural catastrophes become more frequent, the models underlying the pricing of insurance may have underestimated the risks. Those who get this pricing right will have an opportunity due to the increased demand for insurance and see their business grow.
How can an asset manager respond to such risks and opportunities?
From a risk perspective, the short-term impacts of climate change would stem for example from exposure to the EU tightening carbon dioxide allowances. Industries with higher carbon dioxide emissions potentially face the risk of having to pay the new operational cost of carbon dioxide. There are also long-term risks from climate change which are at present too difficult to model or value.
In both cases however, the fund manager should undertake the necessary due diligence in understanding the sector- and company-specific risks in their portfolio. RCM's sector and sustainability analysts monitor, research and communicate carbon and climate change related issues to our asset managers to help them with their decision making. With respect to opportunities, these present numerous investment options, ranging from specialized alternative energy companies to diversified capital goods companies producing energy-saving devices. There are also opportunities for the launch of specialized products, that among other environmental factors, focus on climate change. The Ecotrend Fund is a good example for such a product.
There is ongoing debate about whether managing climate risk in investments is part of an asset manager’s legal duty. What is your position?
We must manage the money entrusted to us in accordance with our clients’ instructions. These instructions typically take the form of investment management agreements or prospectuses. We have a fiduciary duty to follow those instructions. At the same time, climate change related issues present risks and opportunities to enhance long term returns in portfolios, as any other factor in our analysis might. Climate change is one of many such factors to be considered.
Allianz is a founding member of the Carbon Disclosure Project (CDP) and, recently, joined large investors and companies in the U.S. pushing for mandatory carbon disclosure. How important is carbon disclosure for an asset manager?
It’s an interesting fact that RCM, a company of Allianz Global Investors, was the founding member of the CDP, with Allianz AG signing up the following year. Carbon disclosure becomes important where it starts to make a material impact on a company's financial performance. This can either be in terms of additional capital expenditure requirements to meet more stringent carbon emissions goals. Or because there is clear evidence that a company stands to have a financial benefit from improving their carbon intensity, for example by generating carbon credits which have a financial value. Importantly, consistency and comparability is very useful and this is what the CDP is providing.
editor: Thilo Kunzemann
publishing date: June 4, 2007
