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South American commodities producers need to strengthen corporate governance as part of a drive to shift investment into carbon-free assets in the face of global warming, Peru's biggest pension fund manager said.
Industries including mining, energy and banking will have to provide greater disclosure and adopt stricter environmental principles to attract investors, Aldo Ferrini, CEO of Grupo Sura-controlled private pension fund manager AFP Integra, told BNamericas. Peru's private pension fund system manages US$41bn in assets.
Companies that fail to improve corporate governance face greater risk from regulatory and taxation issues, said Ferrini, who heads the Peruvian chapter of Principles for Responsible Investment (PRI), an initiative created at the COP20 environmental summit held in Lima in 2014.
Investors face challenges in a region heavily dependent on commodities such as crude oil, natural gas and minerals, the fund manager said.
"It's an issue that has attracted a great deal of interest from investors," Ferrini, who manages a US$13bn fund, said in an interview on the sidelines of a private event in the Peruvian capital. "The idea isn't to punish or to stop investing in extractive industries. The issue is how we take on extractive industries so that they're as responsible as possible."
Initiatives such as PRI emerged as sea levels rose 17cm over the past century, while the past decade was the hottest since records starting being kept in 1880, according to the United Nations. Acidity of surface ocean waters has increased 30% and countries like Greenland are losing up to 250km3/y of ice.
As part of the global effort to tackle climate change, the UN and 25 investor firms set up the Portfolio Decarbonization Coalition (PDC), which has committed to decarbonizing US$600bn in assets out of a total of US$3.2tn under management, thereby limiting carbon risk exposure.
Carbon risk stems from regulatory impacts on companies that pollute or own fossil fuel reserves; revenue volatility; and competing technological developments in the energy field such as electric cars.
Meanwhile, the Morgan Stanley MSCI Europe Low Carbon Leaders Index, which excludes companies with the highest carbon footprint, has outperformed world indices over the past six years, according to Paris-based Amundi Asset Management.
Global investors interested in corporate greening manage a total of US$92tn, meaning even 0.1% of assets shifted to environmentally friendly investments would represent US$100bn, said Amundi fund manager Frederic Samama.
"Climate change is now perceived as a real risk for long-term investors. see how powerful reallocation of assets can be," Samama said at the event on sustainable investment organized by the French embassy in Lima. "We have a shift, we have agreements between countries, we see momentum."