Five Figures Explaining Climate Investment in Multi-Asset Management

Our multi-asset investment team has created five doodles to help you understand what they think about climate investing.

Ben Popatlal, Multi-Asset Strategist and Leslie-Ann Morgan, Head of Multi-Asset Strategist

Lesley Ann Morgan

1. Sustainability is a two-way street

All investors should consider the climate impact on their portfolio. But investors whose portfolios are focused on sustainability need to go a little further. They need to consider the climate impact of their portfolio.

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Benjamin Popatlal

2. The way climate equalization is measured is no longer binary

In the past, an asset has either been “climate-aligned” or not; climate equalization is now assessed on a more gradual scale.

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3. Be careful not to overstretch your wallets too quickly

Improving your portfolio’s climate profile too quickly can lead to higher investment risks compared to the benchmark. It is important to understand where these constraints lie in order to create a portfolio that meets both investment and climate goals. Climate improvement is “free” to some extent; it does not jeopardize the investment objectives of the portfolio.

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four. The trajectory will definitely not be linear, and faster evolution does not necessarily mean better.

The trajectory of portfolio decarbonization is not linear. A faster trajectory is not necessarily better because a better portfolio does not necessarily mean a better climate (see Figure 1). In the doodle below, “updates today” is the “free” updates we mentioned in the previous doodle. But in the vast majority of cases, improving the climate will take time.

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5. Investors have three main tools to achieve their climate goals

Our “climate distribution” of investments highlights three tools that should help investors achieve their climate goals. Avoid assets with the worst weather profiles, look for assets with the best weather profiles, and encourage all other assets to improve.

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