“We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity.” -- Larry Fink, BlackRock, 2021

The global investment community is in agreement on the direction of climate action: Net Zero by 2050, which implies ensuring that your portfolio emits 7 – 10% less emissions each year from now until 2050. This is a big job, but a doable one. Here are five thoughts to help you on your way:

1. Choose the right metrics

Carbon footprinting may be an established way to measure your portfolio’s carbon emissions. The drawback is that it looks backwards – at emissions already emitted. This may not be helpful to identify opportunities, which is why it is time to switch it up. A ‘temperature alignment score’ measures the level of warming in terms of degrees the portfolio is aligned with, like the Paris Agreement does so for the planet. It is based on forward-looking carbon reduction goals set by companies. The methodology determines if these goals are ambitious enough for a Net Zero trajectory. For example, if an investor only invests in companies with carbon reduction goals that meet a Net Zero trajectory, then the whole portfolio would automatically be in line with Net Zero as well.

2. Set up your tooling

Once you have the data, it is time to run the analytics such as to calculate your portfolio’s temperature alignment score. There are open source options (e.g. The Science Based Targets Initiative Finance Tool) to get you started, which covers listed equity and debt. Our Climate ALIGN solution has expanded on this open source tool and added additional asset classes including real-estate, sovereign debt, and – coming soon- private assets. Conveniently, we can even run the whole analysis for you.

3. Act

Rethink and adjust your company, sector, benchmark and even asset class exposures. Where can you maximize ‘alignment gain’ and ensure that you are investing in future-proof assets? We are happy to support you in making the right choices.

4. Understand your risk

A net zero portfolio may still have significant (climate) risk. Risks like extreme weather events, high volatility, and concentration risk remain as relevant as ever.

5. Disclose

Where better to disclose your ambitions and progress than in your own Task Force on Climate-related Financial Disclosures (TCFD) report. Unsure of where to start? We have some of the most experienced TCFD report writers on our team to lend a hand.

 

 Ortec Finance delivers state-of-the-art customizable solutions for climate resilient investment decision-making. We combine independent, research-backed climate & ESG knowledge, advanced financial models, and innovative technology for:
  • Climate scenario analysis
  • Climate-aware Strategic Asset Allocation & ALM
  • Alignment to Net Zero
  • Forward-looking extreme weather risk
  • TCFD disclosure
  • AI-driven ESG analytics

 

Would you like to get started on your Net Zero journey? Don’t hesitate to reach out to us.

Contact us here

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