Ninety One is an investment management business with a focus on long-term value creation for our clients. By our analysis, climate change represents one of the greatest single long-term investment risk, and the one on which we are the most focussed at this point in time. We were not surprised that the 2020 Global Risks Report from the World Economic Forum had climate change and environmental risks occupying all of the top five spots on the list, specifically extreme weather, climate action failure, natural disasters, biodiversity loss, and human-made environmental disasters. These risks have been hidden in plain sight for a long time.
As a publicly-listed asset manager, we need to think about transition risk and physical risk from climate change in the context of all our stakeholders. This means our staff, our clients, our shareholders and the companies in which we invest. The greatest risk to our business is a material destruction of value in the underlying companies to which we allocate our clients’ capital; for this reason, deep integration of climate change risk in our investment process is the most important protection for our business in the long term.
We categorise transition risk into three main areas: regulatory risk, consumer risk and technology risk. Regulatory risk includes carbon pricing and other aspects of an Inevitable Policy Response. It also includes evolving regulation around the taxonomy of sustainable business activities, for example. Consumer risk – or market risk – can be created by regulatory risk or can arise from a material change in client behaviour or preferences. An example for an asset manager like Ninety One would be a change in the type of investment funds which were commercially successful, driven by changing client perceptions around climate change. Technology risk from climate change for an active asset manager is linked to consumer risk and could include the rise of low-cost passive funds focused on climate change mitigation.
Physical risk from climate change is centred around increased global temperatures, rising sealevels, and the growing prevalence of extreme weather events such as droughts, floods and wildfires. Once again, all of them present a risk to all of our stakeholders – staff, clients, shareholders and the companies in which we invest.
The investment community has historically spent a greater proportion of its time on the risks around climate change. We at Ninety One believe that the opportunities which might be created have been largely overlooked. There are three main categories of opportunity: we can improve our energy and resource efficiency, which will reduce our cost of doing business and have a positive impact on our community and our natural environment. We can develop investment products which will benefit from the move towards a decarbonized economy. Third, we can stand out from the crowd as a financial services organisation with a deep understanding of Sustainability which is a driver of intangible value.
Climate risk is integrated into all our investment strategies and we've also launched specialist Sustainability strategies with direct exposure to decarbonisation.