Our multi-asset investment team has drawn five doodles that help you understand how they think about climate investing.
All investors should consider the impact of the climate on their portfolio. But investors whose portfolios have a sustainability objective should go one step further. They should consider the impact their portfolio has on the climate.
In the past an asset was either “climate-aligned” or not; now climate-alignment is assessed on a more continuous scale.
Improving the climate credentials of your portfolio too much too fast could result in higher investment risk relative to a benchmark. Understanding where those limits are is important for building a portfolio that meets both investment and climate goals. Some climate improvement is ‘free’; it doesn’t compromise the portfolio’s investment objectives.
The decarbonisation trajectory of a portfolio will not be a straight line. A faster trajectory is not necessarily better, since improvements to the portfolio do not necessarily mean improvements to the climate (see doodle 1). In the doodle below, “today’s improvements” are those “free” improvements we mentioned in the one above. But the vast majority of climate improvement will come through time.
Our ‘climate distribution’ of investments highlights three tools investors have to meet their climate goals. Avoiding assets with the very worst climate credentials, pursuing those assets with the very best climate credentials, and encouraging all other assets to improve.
The value of your investments and the income received from them can fall as well as rise. You may not get back the amount you invested.