By Jakob Thomae & Michael Hayne
The climate change negotiations in Paris this December have already achieved one thing. The debate in the investment community is no longer about whether you believe in the transition to a low-carbon economy. The question is rather how ambitious that transition will be and how exactly it will materialise.
Every single investor portfolio is in some form betting on how the transition will occur, and is thus exposed to risks associated with this transition. This is true even if that bet is as simple as saying that a transition won’t take place. Investors should be reminded that it’s not if you bet, but how you bet.
Our recent research for the first time lifts the veil on this bet, allowing investors to understand if the implicit bet in their portfolio strategy is aligned with their investment beliefs. 2° Investing Initiative launched a free equity portfolio check in October, realised as part of the SEI metrics project involving half a dozen partners. The check involves testing equity portfolios vis-à-vis their alignment with the 2°C decarbonisation trajectory, as defined by the International Energy Agency (IEA).
Read more here.