Adapting portfolios to climate change - Implications and strategies for all investors

This report starts by detailing how climate change presents market risks and opportunities through four channels:

1. physical: more frequent and severe weather events over the long term;
2. technological: advances in energy storage, electric vehicles (EVs) or energy efficiency undermining existing business models;
3. regulatory: tightening emissions and energy efficiency standards, and changing subsidies and taxes;
4. social: changing consumer preferences and pressure groups advocating divestment of fossil fuel assets.

These factors can play out immediately (often the regulatory variety), in the medium term as economies transition to a lower-carbon world (often technological), and in the long run (often physical). Investor time horizons differ as well — and may require different approaches. The longer an asset owner’s time horizon, the more climate-related risks compound. Yet even short-term investors can be affected by regulatory and policy developments, the effect of rapid technological change or an extreme weather event.

The Report outlines how asset owners can take advantage of a growing array of climate-related investment tools and strategies to manage risk, to seek excess returns or improve their market exposure. We explain how investors can gradually implement climate considerations into their portfolios and illustrate the complexities of a one-time portfolio makeover.