Key Insights

  • As governments and investors set targets to achive a net-zero emissions in the future, investment managers, capital allocators and consultants have a fundamental role to play in the transition process.
  • While advancements in data, analytics and reporting enhance the transparency around carbon risks, performance, transitions and scenario analysis, active managers have key role to play in assessing true risks and possible transition scenarios that occur at the company level. The complexity of this task means there will be long term losers and winners. This type of pay-off offers active investors an opportunity to not only manage envionmental risks in a proactive manner but also use it as a source of alpha generation.
  • Carbon benchmarking of Australian share managers by Foresight shows significant level of dispersion in relative carbon emissions and carbon intensity per million dollar of revenue. It is worth noting that a lot of the benchmark relative dispersion is driven by sector allocation as opposed to security selection decision.
  • The good news is that many active Australian share strategies offer carbon efficient portfolios relative to the benchmark. These carbon light or carbon resilient portfolios are offered by managers that are actively seeking to reduce carbon in their portfolio as well as those who simply choose to avoid carbon intensive companies aspart of their quality focus. A low carbon portfolio aims to manage climate risk by meaningfully reducing its carbon exposure.

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