Transitioning towards a more climate-aware investing portfolio
Climate risk is fiduciary risk. As the environmental consequences to the world economy have become more salient, the investment research and decision-making process can no longer ignore the impact of the climate crisis. Consistent with the goals of the Paris Agreement to keep global average temperature rises to well below 2.0°C, more investors are committing to transition their investment portfolios. For example, the Net-Zero Asset Owner Alliance had 74 members with $10.6 trillion in assets under management as of July 2022, pledging to a net zero pathway by 2050 or earlier. Even if investors do not embark on a net zero trajectory, many are doing more to reduce the carbon footprint of their portfolios while maintaining similar risk-return characteristics.
Yet climate-aware investing can be highly uncertain, with trade-offs between reducing the portfolio’s emissions and the emissions of the real economy. Many find it difficult to grapple with questions such as the following:
- What level of climate ambition is appropriate for the organisation?
- How can a portfolio carbon footprint be measured?
- What investing strategies will help to reach decarbonisation ambitions?
- How can climate investing decisions be more forward-looking when much of the data and analytics are based on historical trends?
Introducing our series on climate-aware investing
To help manage the portfolio decarbonisation process, we provide short guides for investors to begin mapping and implementing a portfolio decarbonisation pathway in “Race to net zero: Setting climate-aware ambitions” and “Race to net zero: Implementing a portfolio decarbonisation pathway”, respectively. In the coming months, we will also delve deeper into specific asset classes and share more of our views around climate-aware investing during other stages of the journey.
To read more, please visit our website: Race to net zero: Seeing the world in an investment portfolio (fidelity.be)