OPTrust releases results of the pilot climate-savvy asset liability management/strategic asset allocation (ALM/SAA) project
Additionally, I Care & Consult, the Institute for Environmental Studies – VU Amsterdam, the Grantham Research Institute at the London School of Economics, Potsdam Institute for Climate Impact Research, Sustainable Finance Lab, Utrecht University and the University of East Anglia offered their expert feedback in this project.
- The pilot has established that it is crucial for investors to consider the macro-economic and systemic implications of different global warming pathways (top-down approach). The currently dominant holdings-based focus (bottom-up approach) fails to sufficiently capture the structural impacts of climate-related risks on the global economy, and how this in turn affects an investors’ overall performance.
- On a shorter-term horizon, navigating the potentially impactful financial aspects of a transition that is likely to be disorderly, is a key risk management priority. Closely monitoring technology, policy, legal and consumer sentiment developments plays an important role in this regard. Having a deep understanding of these developments may even support investors in benefitting financially from the economic opportunities associated with the transition to a 1.5°C pathway that may manifest after any transition shocks have been absorbed.
- For a globally diversified long-term investor, a society-wide transition to stay under 1.5°C warming, even a severely disorderly one, is economically preferable to a 4+°C scenario.