Investing to tackle climate risk

Mar 3, 2019

25 Minutes

Historically, the difficulty in accurately answering this question lay in a perceived lack of accurate information needed to respond to rising risks posed by climate change. Measuring carbon emissions has typically been the first step. This approach has been largely limited to what is called ‘Scope 1’ and ‘Scope 2’ carbon emissions – namely direct and indirect emissions of the company.

However, measuring the extent of carbon emissions across the full value and supply chain – known as ‘Scope 3’ emissions – can paint a more comprehensive picture. It is estimated that over 90% of the carbon emissions attributable to the FTSE 100 or FTSE 250 indices are in fact ‘Scope 3’, which therefore suggests that levels of climate risk are being massively underestimated in asset owner portfolios.

Rather than focusing on divestment, we believe that investing positively in companies reducing carbon emissions and enabling transition to a de-carbonised growth model offers the best opportunity to improve the level of protection from climate risk in your portfolio.

Our proprietary model actively reduces carbon emissions and includes companies that benefit from the structural growth areas of a de-carbonising economy. Not only is there little overlap to traditional equity allocations, but there are complimentary benefits, in our view. Investors will gain exposure to a structural growth area which is otherwise under-represented in their portfolios and which will act as a hedge against systemic carbon exposure.

Click here to read more on investing positively against climate change.