Five doodles to explain climate investing in multi-asset
Our multi-asset investment team has drawn five doodles that help you understand how they think about climate investing.
Authors
1. Sustainability is a two-way thing
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.
2. How you measure climate alignment is no longer binary
In the past an asset was either “climate-aligned” or not; now climate-alignment is assessed on a more continuous scale.
3. Beware of pushing portfolios too far too fast
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.
4. The trajectory certainly won’t be a straight line, and faster is not necessarily better
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.
5. Investors have three main tools to meet their climate goals
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 views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.
Authors
Topics