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ESG and low carbon investing - putting theory into practice

  • Posted by: ,  Chief Executive
  • 01 March 2018
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Climate Change and Low Carbon Investing - the best papers

How should pension funds, asset owners and asset managers respond to the issue of climate change? ESG and low carbon strategies are gaining market share. And it's just over a year since the FSB (Financial Stability Board) recommended that portfolio managers should report on carbon exposure in their funds.

In recent months, some excellent papers have been published, assessing the risks and opportunities from climate change, including low carbon strategies and recommended frameworks for action by pension funds and asset allocators. Here's our list of the best papers:


Carbon Risk Integration in Factor Portfolios (S&P Dow Jones Indices, Mar 2018)
S&P Dow Jones Indices shows that carbon-efficient factor portfolios can be a meaningful part of the core equity strategic and tactical asset allocation process.

Measuring Physical Climate Risk in Equity Portfolios (Deutsche AM, 2017)
This whitepaper provides tools to help investors address the effects of climate change on their assets, particularly given the increasing frequency of natural disasters.

Perspectives on Climate Change (Wellington Management, Feb 2018)  
This paper considers a range of issues around climate change, including the 2015 Paris Agreement, scenario analysis, ESG integration and investments for a low-carbon economy.

A Framework for Pension Fund Action on Climate Change (PLSA, Dec 2017) 
Global investors - and pension funds in particular - must take climate change considerations into account. This guide provides a programme of action for UK pension funds in order to further safeguard assets that they control, by discussing changes they can make to internal policies on governance, reporting, investment, and engagement.

Climate Change Scenarios - Implications for Strategic Asset Allocation (Mercer)
This paper examines the extent of the widely acknowledged, broad-ranging future effects of climate change on financial markets and economies. It focuses on how institutional investment portfolios will be impacted. It identifies pragmatic actions institutional investors should consider, including the adoption of an "early warning” risk management process and allocation to climate-sensitive assets.

Beyond Divestment: Using Low Carbon Indexes (MSCI, 2015)
This paper discusses low-carbon indices, and in particular focuses on assets which could become “stranded”, dramatically losing value, in the event of carbon emissions being severely limited in the future.

Sustainable Investments Handbook for Asset Owners (CFA Institute, 2018)
This publication (co-authored by Swiss Sustainable Finance) provides practical insights into different approaches of sustainable investments, complemented with case studies from different asset owners, provides the reader with a comprehensive overview of contemporary best practice in sustainable investing.

Adapting Portfolios to Climate Change: Strategies for Investors (BlackRock)
This paper by BlackRock details how investors explore opportunities and mitigate against climate risks. They conclude that climate-aware investing is possible and it doesn't have to compromise traditional goals of maximizing investment returns.

The Good Thing About Climate Change: Opportunities (GMO, 2017)
Lucas White and Jeremy Grantham of GMO examine the opportunities for companies involved in the climate change sector.

Fossil Fuel Divestment: A practical introduction (MSCI, 2016)
This paper is for asset owners considering the divestment of some type of fossil fuel holdings.

Climate Change and the Fiduciary Duties of Pension Fund Trustees in Canada
Canadian pension fund trustees have debated how climate change should be accounted for in decision-making. The potential of funds to mitigate or exacerbate climate change by means of their investment decisions opens the question of the obligations of trustees.

The Investment Implications of Global Warming (Newton IM, 2017)
Victoria Barron, RI Analyst at Newton Investment Management, discusses some of the investment implications of global warming.

The Carbon Scorecard (S&P Dow Jones Indices)
There is a recommendation from the Financial Stability Board that asset managers now report on the carbon exposure in their portfolios to manage climate-related risks. This report assesses the carbon risks and opportunities of major global equity indices. 

Climate Change: Playbook for the Long-Term Investor (Cambridge Associates)
Climate risk is multi-layered and there are many issues for the truly long-term investor to consider. Some of these are defensive (how to preserve value) and others are offensive (what opportunities does climate change present?)

Sustainable investing as the new normal (McKinsey & Company, 2017)
This McKinsey & Company paper explains how "sustainable investing" has moved from the periphery of investment strategy to the mainstream.