Climate risk disclosure and climate risk management in UK asset managers

Abstract

Purpose – Framed within global policy debates over the need for private financial flows to align with the capital requirements of the Paris Agreement, this paper examines UK asset managers in their approaches to disclosing and managing climate risk. This paper identifies and evaluates climate risk management practices among this under-researched investor group in their capacity to address fundamental behavioural obstacles to low-carbon investment. Design/methodology/approach – This paper takes an inductive approach to document analysis, applying content and thematic analysis to the annual disclosures of the 28 largest UK asset managers (by assets under management), including the investment management arms of insurance and pension companies. Findings – The main takeaway from this research is that today’s climate risk management strategies hold potential to effectively address traditionally climate risk-averse investor behaviour and investment processes in the UK asset management context. However, this research finds that the use of environmental, social and governance (ESG) investment strategies to mitigate climate risks is a “grey area” in which climate risk management practices are undefined within broad sustainability and responsible investment agendas. In doing so, this paper invites further research into the extent to which climate risks are considered in ESG investment. Originality/value – This paper contributes to research in sustainable finance and behavioural finance, by identifying the latest climate risk management techniques used among UK-headquartered asset managers and uniquely evaluating these in their capacity to address barriers to low-carbon investment arising from organisational behaviours and processes.

Keywords

• sustainable finance
• behavioural finance
• climate risk management
• climate risk disclosure
• asset management
• climate investment