Whilst most of the financial impacts of climate change will be felt in the future, on the back of our most recent annual review, we take a number of steps to make our clients’ portfolios more resilient.
In regards to asset selection, we have adopted a rigorous process for considering companies in the sectors most exposed to climate risk. As part of this approach:
We do not invest our clients’ assets in companies that have been identified by our third party data provider, MSCI, as generating more than 5% of their returns from the extraction of energy coal or tar sands. This currently restricts investment in companies like BHP or Anglo American.
We negatively alter diversified oil and gas companies’ valuations to reflect amendments to the projected energy demand during the low carbon transition. This amendment is informed by the International Energy Agency’s (IEA) Sustainable Development Scenario and the Beyond Two Degrees Scenario and makes the sector, and specifically oil intensive businesses, less attractive in our investment model.
In addition to the above, prior to purchase, we conduct an in-house assessment of oil and gas and electrical utility companies’ alignment with the Paris Agreement and associated measures. Investee companies that are not in line with the Agreement require approval from the Chief Investment Officer and Head of Ethical and Responsible Investment prior to purchase, are reported regularly to CCLA’s bi-annual Ethical and Responsible Investment Committee. Once purchased such businesses are prioritised for active stewardship.
We conduct analysis on the resilience of other exposed companies’ (such as those within the financial sector) to climate related events and take appropriate action.