CCLA recognises that climate change, and associated changes in governmental policy, pose a threat to shareholder value over the medium to long-term. We view climate change as the largest threat to our planet, ecosystems and communities, as well as a being a critical issue for long-term investors. We also recognise that the transition to a low carbon economy presents investment opportunities. For these reasons we have long supported efforts to limit global temperature rises to substantially below two degrees Celsius above pre-industrial levels.
When identifying new opportunities for our equity and multi-asset funds we aim to invest for a minimum of five years and are aware that the time horizon for many of our charity clients is much longer. For this reason, our climate change and investment policy is applied to all assets under management at CCLA.
We recognise that the biggest risk to investors is a failure to limit temperature rises to a level that is substantially below two degrees above pre-industrial levels. We are also aware that different companies and sectors will be impacted at different times and to different extents and that the impacts of climate change will spread beyond purely environmental issues. For this reason, we review the World Economic Forum's Annual Global Risks Report to identify themes that are of concern and, subsequently, conduct an annual review of the impacts of climate change on the performance of 67 GICs Industry Sectors.
Due, in part, to climate concerns CCLA is currently absent many high carbon sector sectors (such as aviation and cement). Therefore, our risk assessment has prioritised concerns in the sectors held within our portfolios. The keys risks identified are:
- The prospective impact of potential regulation, legislation and litigation on carbon intensive businesses. Through this review we continue to hold a particular concern that the market is not correctly pricing the risk of accelerated legisilation and consumer trends and the impact that this could have on ‘Stranding Assets’ (such as existing fossil fuel reserves)
- The physical effects of climate change. We believe that this will impact upon real estate value (we have a particular focus on assets held in our property funds), financial services companies (such as increasing numbers of insurance claims due to extreme weather events) and impact upon day-to-day operations of assets due to issues such as water shortages.
The risk awarded to a sector determines whether an asset is an eligible investment and/or the level of due-diligence that is necessary to complete prior to a stock entering a CCLA portfolio. For this reason, we are significantly underweight the oil and gas sector, the automobile industry and other exposed sectors.
We also recognise that the transition to a low carbon economy will present significant investment opportunities. We have identified opportunities in renewable energy infrastructure, energy efficiency investments and property refurbishments.