Global Climate Change
Schroders Global Climate Change seeks to provide capital growth primarily through investment in equity securities of worldwide issuers which will benefit from efforts to adapt to, or mitigate climate change.
We do not define a specific performance target but we believe that over time, companies well-positioned with regard to climate change will significantly outperform broad world indices.
Our global climate change strategy invests in companies that create products or offer services which help to mitigate or adapt to the effects of climate change.
Mitigation: Things we can do to prevent the worst of future climate change. For example, companies developing new technologies to reduce greenhouse gas emissions.
Adaptation: The changes we will have to make to accommodate the effects of climate change. For example, companies that construct buildings designed to withstand more extreme weather.
What will the strategy not invest in?
- Companies where the investment case is not significantly affected by climate change
- Companies whose products decrease in demand due to climate change
- Companies that do not recognize and embrace the importance and impact of climate change
Schroders Global Climate Change comprises five main themes: Energy efficiency; Low carbon fossil fuels; Clean energy; Sustainable transport; Environmental resources. We think that these areas will benefit most from efforts to mitigate or adapt to climate change, representing the greatest opportunities for investors.
The Global Climate Change Team is led by Simon Webber. Simon is directly responsible for all decisions made within the strategy and has a detailed knowledge of all companies in which investments are made. He is supported by Global Sector Specialist, Dan McFetrich, a dedicated equity analyst and two Climate Change Specialists, as well as the broader Global and International Equities investment team. In addition, the Global Climate Change Team is able to leverage the research output of over 90 experienced investors located globally, consisting of locally-based equity analysts, and specialist teams of small cap, energy, commodities and agriculture investors.
We believe that:
- Companies that recognize the threats and embrace the challenges early, or that form part of the solution to the problems linked to climate change, will ultimately outperform the broader market.
- Stocks which deliver positive earnings surprise will produce strong and consistent outperformance over time.
- In-depth fundamental research is the most reliable means of identifying such companies and appraising future earnings growth relative to market expectations.
- Material differences between underlying company fundamentals and market estimates exist due to three persistent market inefficiencies:
- Markets over-reacting to short-term news flow
- Markets extrapolating historic growth and failing to correctly interpret catalysts that change the trajectory of growth
- Markets failing to look far enough ahead when appraising the earnings power of companies
What is distinctive about our philosophy is our appreciation that climate change will have huge consequences for companies across a broad range of industries and affect a great many more companies than those purely involved in renewable energy, energy efficiency and environmental resources.
The strategy utilizes a bottom-up, fundamental research driven approach. Stock selection is the primary driver of performance, with proprietary company research key to our investment process.
Our first task in the process of stock selection is to determine a universe of companies from the global investment universe whose long-term business outlook, in our opinion, is significantly impacted by efforts to mitigate or adapt to climate change. We have built a team process and supporting systems that draw on a range of inputs to identify companies where climate change is a significant positive to the business outlook. The climate change universe review team consists of Simon Webber, Dan McFetrich, Owen Scarrott, Isabella Hervey-Bathurst, Andrew Howard and Marc Hassler.
Given rapidly changing business impacts, it is not possible to have simple percentage rules for the amount that a company is positively or negatively impacted by climate change. Therefore, the team assesses relevance based on the factors below. The overarching principle is that climate change must have a significant impact on the long term investment outlook for a stock to be included. A company’s management and strategy is assessed on the following basis:
- Is there significant direct industry exposure to climate change trends?
- What proportion of business segments potentially are exposed to climate change trends?
- Is investment and R&D spending in the relevant area significant?
- How does the product portfolio position the company for the future effects of climate change?
When assessing the significance of climate change on an investment case, we consider the impact of all these factors on expected revenue growth, operating margin and capital intensity of the company. Stocks in the universe are then classified as beneficiaries of either adaptation to or mitigation of the effects of climate change.
From the climate change database, existing best ideas from the Global Sector Specialists and regional small cap team are automatically selected as best ideas for the strategy. Additional stock ideas, either generated by the team or by other sector strategies, are researched from the universe by the portfolio managers. This produces a pool of 50 - 100 best ideas from which a portfolio of 40-60 names is constructed.
- Invests in companies involved in efforts to mitigate or adapt to climate change
- Aims to outperform the MSCI World index, not limiting the fund to a single sector
- Unconstrained, our "best ideas" portfolio of 50–100 stocks
- Truly global portfolio covers a vast array of business sectors and a diverse range of company size
- Companies reporting significant ownership of fossil fuel reserves (e.g. oil, coal, gas, tar-sands, shale gas) are excluded from the universe