For survivors of California wildfires or Venetian floods, climate change is already real. But it’s also being felt in a different corner of the world: Wall Street, where some of the biggest investors are starting to take action.

That’s the finding of a first-ever survey of institutional investors, conducted in part by Texas McCombs. From banks and insurers to pension and mutual funds, 97% of 439 respondents believe global temperatures are rising. More than half say climate risks are already a factor in their investment decisions.

“These investors have accepted that climate change is happening,” says Laura Starks, finance professor at the McCombs School of Business. “They’re trying to come to terms with how it’s going to affect the risk and return of their portfolios.”

The survey also reveals how institutions are starting to act. Their tactics range from asking firms to catalog carbon emissions to backing shareholder resolutions. If institutions are not satisfied with executives’ responses, a few are divesting their shares.

Such measures are only the beginning, the survey suggests. Within five years, fully 91% expect climate risks to be financially material to their investments.

“The industry, as a whole, is just in the early stages of tackling this issue.” — Laura Starks

Institutional Clout

Starks has long been intrigued by the behind-the-scenes sway that institutions hold over corporate management. “Institutional investors hold over 70% of the equities in the U.S.,” she says. “They’re the ones with the most influence on the firms they invest in.”

Are they using that influence to shape climate policies? To find out, she designed the survey, along with colleagues Philipp Krüger of the University of Geneva and Zacharias Sautner of the Frankfurt School of Finance & Management.

She was impressed, not just by the number of firms that replied, but by their seriousness and size. Of executives who filled out the survey, 31% were C-level. Forty-eight of the 439 respondents managed more than $100 billion in assets.

“The largest institutional investors have so many assets that this issue has to affect some of them,” Starks says. “In particular, long-term investors, like pension funds, have to be thinking about what’s going to happen to their participants.”

Many Kinds of Climate Risks

Institutions’ responses paint a mixed picture of how important they consider climate risks. Only 10% rank it as their top concern, compared with standard financial and operating risks. But three kinds of climate risks are rapidly rising in urgency:

· The risk of new regulations is already having financial consequences for 55% of respondents. “The Paris accord means that different countries are going to have to start regulating carbon emissions more,” Starks says.

· Within two years, 66% fear physical impacts on their assets, from extreme weather, rising sea levels, or wildfires.

· Within five years, 78% expect technological effects, as greener technologies unseat carbon-burning ones.

“If you’re an automaker, the gasoline engine is going to be on its way out,” Starks says. “You may have to go more towards electric vehicles. Are you being managed so that you can adapt to these changes?”

Because of such risks, some investors are suspicious of stock values in carbon-heavy industries. Seventeen percent believe that oil shares are significantly overvalued and would be lower in price if Wall Street fully accounted for climate threats. Traditional automakers and electric utilities are next in line, with 14 and 13% believing they should have much lower prices.

Protecting Portfolios

How can institutional investors shield themselves, especially when it’s not clear what specific risks they need to protect against? “We don’t know what’s going to happen, we don’t know when it’s going to happen, and we don’t know who’s going to be affected,” Starks says. “It’s hard to know what you’re hedging against.”

For many, the first step is to assess the problem. Thirty-eight percent are analyzing the carbon footprints of the securities they own, while 24% consider climate risks when screening new investments.

The next step is to talk with corporate managers. While 43% of institutional investors have discussed climate risks in general, 32% have proposed specific actions to shrink carbon footprints.

Respondents aren’t always happy with companies’ responses. Thirty percent have submitted shareholder proposals, such as a successful 2017 resolution that asked Exxon Mobil to disclose how climate risks would affect the company in the future.

A fifth have taken more drastic steps, such as publicly criticizing management, taking legal action, or the ultimate punishment: selling off shares.

But for most, it’s enough to put executives on notice, Starks says. “A company becomes more aware of what’s in their carbon footprint, because someone is watching.”

Millennial Will Have Money

Financial hazards aren’t the only reason institutions are paying attention to climate, says Starks. Another is investors themselves — particularly millennials. They’re attracted to new kinds of investments, like low-carbon bond funds, which let them put their money where their values are.

“They’re going to inherit a lot of money from baby boomers,” she says. “So institutional investors have a heightened interest.”

At the same time, it’s getting easier for institutions to track the carbon footprints of the shares they own. Independent services offer data on emissions. A United Nations task force is developing standard formats for companies to disclose their climate risks.

“A lot of investors believe climate risk reporting is as important as traditional financial reporting.” — Laura Starks

Like the global climate itself, the investment climate is rapidly changing, says Starks. What the survey shows is that institutional investors are waking up to those changes. The companies in which they invest can expect to feel more and more heat in the years to come.

“They’re just starting to deal with this,” she says. “If we gave this survey again in three years, I think we would see a lot more evolution in their approaches.”