Responding to Climate Change Risk in Portfolio Management

Since the Carbon Tracker Initiative’s first report, in 2012, which highlighted the concept of a carbon bubble, there has been a steady increase in the level of interest and activity on the concept of “stranded assets”. This is demonstrated through activities such as the divestment campaign of, the Bank of England’s formal announcement in 2014 that it will investigate the financial risks of a “carbon bubble” and ExxonMobil’s publication of a carbon asset risk report as a result of shareholder pressure. In September 2013 we published a paper entitled “Unburnable carbon: How should investors respond?” in which we put forward a series of responses that investors may wish to implement when assessing and managing their portfolios’ exposure to climate change and carbon assets.

This paper highlights how we can help investors to assess their exposure to climate change, before identifying some of the options that investors may wish to implement (or have implemented on their behalf) in order to manage this exposure. We recognise that in order to avoid dangerous global warming of 2°C, then the whole global economy will have to decarbonise materially over the next few decades and that all sectors of the economy will be impacted by this.


This paper explores the various strategies that investors can employ to understand their exposure to climate change risks and to mitigate these risks. We list below the topics that are discussed:

Assessing portfolios’ carbon risks

  • Economic analysis of long term impacts of climate change on portfolio investment strategy
  • Analysing portfolio carbon risk exposure
    • Portfolio carbon footprint & carbon asset exposure analysis
    • Portfolio constituents climate change risk management analysis.

Managing portfolios’ carbon risk exposure

  • Company stewardship
  • Fossil fuel company engagement
  • All company engagement on climate change
  • Integration into stock selection and valuation Hedging
  • Divestment

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The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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James Brennan

James Brennan

Portfolio Director