The challenge of climate change: what can investors do?
How can investors support the path to climate neutrality with their portfolio?
The world community is facing one of the greatest challenges in its recent history: the radical reduction of CO2 emissions.
The way there is mapped out with the resolutions of the Paris climate conference in 2015: by 2030, greenhouse gas emissions in the EU are to be reduced by at least 55 percent compared to 1990, and by 2050 climate neutrality is to be achieved. Europe wants to achieve this by 2045.
The United States has set itself the goal of reducing its emissions by 50 percent by 2030. However, according to experts, even these ambitious projects are not enough to limit global warming to 1.5 degrees.
The consequences of global warming could already be seen this year: there are more environmental disasters, the water level will make certain regions uninhabitable, but biodiversity on our planet is also suffering.
The economy is also threatened with significant losses: without climate protection measures, the global economy could shrink by 18 percent. Southeast Asian countries, which have become the engine of global economic recovery over the past two decades, are likely to suffer the most.
It's time to act - also when investing
Politicians use various regulations to specify how the financial sector can support the reduction of CO2 emissions through intelligent management of investments. But how can this be implemented in practice and how can success be measured?
Fund managers and analysts are in regular contact with companies to make decisions for or against specific stocks or bonds – the so-called fundamental analysis.
This has now been expanded to include the topic of sustainability in that there is also a precise analysis of the potential the company has to save CO2. Based on this, clear targets are defined.
The necessary measures are defined together with the company in which the investment is made. Regular reporting checks that these are being complied with and have the desired influence on CO2 emissions.
How to measure CO2 emissions in a fund
In order to be able to measure the emissions of a company, there is a categorization according to Scope 1, 2 and 3. The sources of the CO2 emissions, which can be directly or indirectly attributed to the activities of the respective company, are divided into a total of 15 areas. The challenge is to measure these values - where this is not possible, estimates are used.
With the help of the determined values and two formulas specified by the regulation, the CO2 emissions in a stock or bond portfolio can then be calculated.
Assess potential: with our own climate rating
Within our investment process we have introduced our own climate rating. It assesses which companies are in the best position to make the transition to net zero, or showing positive progress along the way. It complements our own, more comprehensive, sustainability rating, which measures companies against a range of environmental, social and governance criteria.
Phasing out coal is the biggest lever
We will focus on coal producers first, as the transition away from thermal coal represents the greatest opportunity to reduce carbon emissions over the next decade.
Capital market scenarios depending on the course of the climate crisis
Capital market development over the next 20 years will be shaped by whether and how quickly global warming can be slowed down.
Our Global Macro Insight team explains which long-term global warming projections we base our capital market scenarios on and how they influence our asset allocation investment decisions. (only for professional investors)
