October 3, 2024 • 16 mins
Despite the flip-flopping of some governments and companies on their net zero ambitions, the world is on the road to decarbonisation.
That means investors are having to make decisions too.
In this show, we speak with Simon Webber, Head of Global Equities at Schroders, and Ben Popatlal, Multi-Asset Analyst at Schroders, about the challenge of decarbonising their investments and how to create a decarbonisation strategy.
RUNNING ORDER:
00:53 - Part one: the road to decarbonisation
08:30 - Part two: the strategies that could help investors decarbonise
NEW EPISODES:
The Investor Download is available every other Thursday and will be released at 1700 UK time. You can subscribe via Podbean or use this feed URL (https://schroders.podbean.com/feed.xml) in Apple Podcasts and other podcast players.
GET IN TOUCH:
mailto: Schroderspodcasts@schroders.com
find us on Facebook
send us a tweet: @Schroders using #investordownload
READ MORE:
Schroders.com/insights
LISTEN TO MORE:
schroders.com/theinvestordownload
Important information.
This information is not an offer, solicitation or recommendation to buy or sell any financial instrument or to adopt any investment strategy. Any reference to sectors/countries/stocks/securities are for illustrative purposes only and not a recommendation to buy or sell any financial instrument/securities or adopt any investment strategy.
Any data has been sourced by us and is provided without any warranties of any kind. It should be independently verified before further publication or use. Third party data is owned or licenced by the data provider and may not be reproduced, extracted or used for any other purpose without the data provider’s consent. Neither we, nor the data provider, will have any liability in connection with the third party data.
Reliance should not be placed on any views or information in the material when taking individual investment and/or strategic decisions. The views and opinions contained herein are those of individual to whom they are attributed, and may not necessarily represent views expressed or reflected in other communications, strategies or funds.
The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall.
Past Performance is not a guide to future performance and may not be repeated.
The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change.
Issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Welcometo the Investor Download, the podcast
about the themes driving markets andthe economy now and in the future.
I'm your host, David Brett.
(00:22):
Despite the flip-flopping of somegovernments and companies on their net
zero ambition, the world is onthe road to decarbonisation.
That means investors arehaving to make decisions, too.
In this show, we speak to two investorsdealing with the challenge of
decarbonising their portfolios and howthey go about creating a
decarbonisation strategy.
(00:47):
On Apple Podcasts,Spotify, or wherever you get your
podcasts, you're listeningto the investor Download.
As the world speeds towards net zero,investors are playing their part, too.
Many people have a personal objectives ormorals and values that they want to
align with their investing objectives.
That's Simon Webber, Head ofGlobal Equities at Schroders.
(01:10):
He sees investors taking an active role indecarbonising their portfolios to help
businesses and governmentsmeet their targets.
But it's not just aboutmoral obligation or desire.
This is about opportunity, too.
Many investors, like myself, believe thatthere is huge potential for alpha
generation on the opportunity side in thetransition to a net zero world, and
(01:34):
avoidance of risk bybeing less exposed to companies that are
laggards or industries wherestranded assets are a major risk.
Generating alpha refers to investments'ability to outperform their market,
thereby generating positiverisk-adjusted returns.
We'll come back to risks shortly.
Stranded assets refer to investments thatbecome economically unviable or obsolete
(01:58):
due to factors such as changes intechnology, environmental
regulations, or market conditions.
There could be many reasons why investorswant to embed sustainability and
decarbonisation in their portfolios.
But I think the key thing is thatinvestors want sustainable
outcomes, not just sustainability.
(02:19):
What's the difference betweensustainability and sustainable
outcomes, I hear you ask.
Sustainability is obviouslyquite a general word.
It may mean different things for differentpeople, but in investment, it's tended to
be about benchmarking, comparinginvestments to one another, or what one
fund or index is doing against another.
Benchmarking can be a bitsubjective, to say the least.
(02:42):
It comes with its issues.
Sustainable outcomes is about measuringfunds, portfolios,
against specific targets.
For example, if a company or a fund has atarget being carbon-neutral by 2030 or
perhaps net zero by 2040,that can be measured.
It could be tracked against, and investorscan hold their portfolio managers
(03:04):
accountable for deliveringagainst that target.
The key point is it's measurableand it's much more objective.
That's a critical factor if investorstruly want to decarbonise
their portfolios.
For many investors, decarbonisationsimply means reducing emissions.
For most, that needs to beachieved by a certain date.
Sounds simple, right?Well, not quite.
(03:26):
Lowering emissions in a portfolio isn'tjust about divesting from fossil fuels or
reducing investments in thehighest emitting assets.
As investors, our portfoliosdon't operate in a vacuum.
That's Ben Popatlal,a Multi-Asset Analyst at Schroders.
Our portfolios operate within the boundsof an investable opportunity set, which is
(03:47):
ultimately set for usby the world at large.
There's a bigger theme at play here: from truly caring about how we treat the (03:50):
undefined
planet to recognising where countries andcompanies have set targets
to achieve net zero by a certain day.It's going to happen.
Decarbonisation for us also means that weneed to understand the world that we
operate in, different parts of the world,regionally, different parts of the
(04:11):
investable universe, about sectors anddifferent companies, will
decarbonise at different speeds.
And so for us, as active managers,decarbonisation means operating within
that universe, in line with the universe,but hopefully in a manner
that avoids the risks associated withclimate change and takes
(04:32):
advantage of opportunities.
Risks can include anything from businessesnot following through on their net zero
commitments to supply chains beingdisrupted by climate events to countries
reneging on their climate promises.
So governments and policymakers canbe a headwind.
I think probably the uncertainty thatcomes with policy can be a headwind.
(04:53):
The red tape that comes with policy,wondering when policy is going to be
enacted, whether there'll be a change ingovernment and a massive
structural change in the way that thegovernment is going to be
pointing their objectives.
And I think when governments are clearabout what their targets are and what
their priorities are, that setsthe scene for individual companies.
(05:17):
It gives companies a licence to set theirown targets and align their
targets with their governments.
And all we're really doing, especially inmulti-asset for our decarbonisation
strategy, all we're doing is aligning ourtarget with the general
target of net zero by 2050.
Managing those risks,dealing with companies and governments
flip-flopping on their commitments, ormoving the goalposts is a hazard that
(05:40):
comes with the territory for investors.
It means they have to be versatile when itcomes to decarbonising their investments.
There's always a trade-offwith everything, basically.
I think that's true, not just aninvestment, but pretty
much in all walks of life.
But we found that the trade-offwith decarbonisation is nonlinear.
That sounds like a technical term, butwhat I mean by that is
(06:01):
you can reduce emissions in yourportfolio, or you can improve the climate
profile of your portfolio to a certainextent without taking on additional
investment risk, without taking ontracking area relative to a benchmark,
and you can push that to a certain amount.
But then if you push it toofar, too fast, if you like.
If you're going much faster than theuniverse will allow you to go, then you'll
(06:25):
start to take on a lot moreactive investment risk.
The key thing is that where you've takenon that active investment risk,
you haven't taken it on because youexpect to be financially rewarded.
Helping investors make the right decisionsand avoid taking on too much risk requires
businesses and governments to play theirpart and to be as transparent as possible.
(06:45):
We are now getting more and more data fromcompanies, and
the disclosure is improving.
It's not perfect, but it's improving.
That's Simon Webber again.
We're getting better data to beable to report on current emissions.
We're getting better data around targetsthat companies are setting so we can build
profiles of where...
(07:06):
If companies deliver on those targets,their mission profile will be going in the
future, and we can aggregatethat up to a portfolio level.
But it's not perfect,which represents a challenge.
What happens if a company isn'tliving up to its side of the bargain?
We get more and more questions aroundindividual companies, around the
engagement that we're doing withlaggards, not just leaders with laggards.
(07:32):
If they're a laggard,are we comfortable with that?
Are we engaging with the company?
If they remain a laggard, how does thataffect our investment view of
the company and the equity?
Clients like to see what it means for themand the portfolio as a whole, what the
trajectory is, what the history has been,and it ends up in good conversations.
(07:57):
You get a lot of insights aboutyour investments from this as well.
So we have our net zero target.
We're looking at the data.
We know the amount of risk we're willingto take, and we know we can engage
businesses failing to liveup to their commitments.
But how do investors go about creating astrategy to meet their
decarbonisation objectives?
That's coming up after the break.
(08:18):
Get in touch with us by emailat schroderspodcasts@schroders.
com or visit our website, schroders.
com/theinvestordownload.
So much information and so many pitfallscan make it difficult to know where to
start when creating a strategyto decarbonise your investments.
(08:38):
But Popatlal says the best place to beginis probably the most obvious place
to look, and that's with policy.
On the fiscal side or on the governmentside, the policy will
create winners and losers.
It will create winners and losers acrosssectors, but also
companies within sectors.
And so I think for us, I mentioned earlieron about emissions and
trying to reduce those.
(08:58):
But to some extent, it's about companiesjust aligning their business models with
the future state of the world thatgovernments are trying to encourage.
So for us, it is about futureproofing your portfolio going forward.
That's probably the main priority.
One proxy for that isemissions or just a simple metric,
(09:22):
something like climate change relatedmetrics that we can track in our
portfolios, and we cansee them in our dashboard.
Those are proxies to help us understandwhether a company or whether a sector
or a region is aligned with some...
Or is future proofed againstgovernment regulation.
If you followed the policy, then there'scertain leavers you can pull as an
(09:44):
investor, particularly ifyou're a multi-asset investor?
Multi-asset investors are fortunate inbeing able to pull lots
of different levers.
You would expect a multi-asset investor topull the lever of asset allocation,
your equities versus bonds.That's something they've always done.
But then I thinkbecoming more important is the
strategy type within the asset class.
(10:06):
Given strategy types within your equityportfolio can do different things for you,
given the objective that they have bothon the investment and sustainability side.
So we pull the asset class lever, we pullthe strategy type lever, but then also
pull the kind of whatwe call the levers for change, which are
trying to drive real-world improvement.
(10:28):
Because as the real-world improves,so we can build a better
portfolio within that world.
So in a way, youcan see that as being refreshingly selfish
way to think about the planet, which isthat we want the planet to improve so that
we can build a betterportfolio within the planet.
And the levers there are engagement.
We've already mentioned that.
(10:49):
We think that's the mostpotent tool for equities.
We can do it in a credit portionof the portfolio as well.
But in the equity space, you'rean actual owner of the company.
The provision of capitaland use of proceeds.
That's something that we think you can doin the fixed income
portion of your portfolio.
So things like greenbonds that you can use.
And then finally, impact is the thirdlever, and we think that's a high bar.
(11:12):
But what if you're nota multi-asset investor?
What if you focus on one assetclass, say equities, for instance?
What do you do then?
Here's Simon Webber again.
Well, there are two main lenses asequity investors we can look at.
One is the carbon footprint, or perhapsmore correctly, the financed
emissions of a portfolio.
(11:32):
We can look at the weighted average ofthose financed emissions, and we can
look at how it declines over time.
Lots of clients andsome portfolios are setting targets to
decarbonize, and you can align that withthe trajectory that the world needs
to be on to meet the Paris Agreement.
Of course, that's what institutions likeSchroders have as a whole, is we
(11:55):
have targets as a business to align.
But that's just one way of lookinga carbon footprint of a company.
That's just one way of looking at it.
A carbon footprint of a company can bevery different depending
on the industry they're in.
But two businesses in different industrieswith different carbon footprint could
(12:15):
still be alignedif they have the right investments and
decarbonisation trajectory ahead of them.
An important tool available to equityinvestors to help them align targets and
companies' delivery on those targets issomething called implied
temperature rise or ITRs.
These ITRs are essentiallytemperature scores that you
(12:38):
turn company targets and companydelivery on those targets into.
Each investment we make will have animplied temperature rise, and then there's
a formula for looking atthat at the portfolio level.
For active management of equities,this is really important because at a big
asset owner level, you might want to belooking at the overall emissions because
(13:01):
you will still be investing rightacross the market over time.
But for one portfolio,like some of the ones I manage,
in a year's time, the really attractiveinvestment opportunities might
be in a higher carbon sector.
The carbon footprint or financed emissionsof one portfolio,
if it's actively managed, should be ableto rise if you're finding opportunities
(13:26):
in these other parts of the market.
But if you're still investing in companiesthat are aligning themselves with the
Paris Agreement, they should still have animplied temperature rise, and the
portfolio as a whole could still have animplied temperature rise that is
consistent with the Paris Agreement.
Papatlal has three pieces of advice toinvestors creating a
decarbonisation strategy.
(13:46):
First, be aware.
Understand that your portfoliodoesn't operate in a vacuum.
The extreme example, as you've alreadygone to, is that we probably can get to
net zero or very close to netzero in the next few years.
But there's a huge cost associated withthat, and that is possibly taking on
massive concentration risk, kicking outentire sectors of the economy,
(14:07):
missing out on loads of opportunities.
Second, don't be afraid.
Pull every lever that you can.
Those are the leavers for drivingreal-world change that I mentioned.
If you are a multi-asset investor,recognise that there's engagement within
equities and credit,possibly with sovereigns too.
And then also real-world impactdecarbonisation solutions, rather than
(14:28):
just looking at the profile of the asset.
And think about what that assetis doing for the real world.
Is it offering solutionsfor the real world?
So that's what those are the higher impactparts of the portfolio that we look at.
Finally, be vigilant.
Put in place a monitoring framework andkeep the monitoring
framework quite simple.
And put everything inone place if you can.
(14:50):
So have a dashboard in front of you thatcan look at the emissions profile, the
intensity profile, the footprint, impliedtemperature rise, and any other metrics
that matter to you as the investor.
Try and get them all into one place orinto a small number of tools so that you
can have a monitoring framework thathelps you keep on track of your portfolio.
Again, don't over complicate it.
(15:11):
Keep it simple, but be ontop of it all the time.
That was the show.
We very much hope you enjoyed it.
You can subscribe to the InvestorDownload wherever you get your podcasts.
And if you want to get in touch withus, it's Schroders podcasts@schroders.
com.
And you can find out much,much more at schroders.
com/insights.
New shows drop every otherThursday at 05:00 PM UK time.
(15:35):
In the meantime, keep safe and go well.
The value of investments and the incomefrom them may go down as well as up, and
investors may not get back theamounts originally invested.
Past performance is not aguide to future performance.
Information is not an offer, solicitation,or recommendation of any funds, services,
or products, or to adoptany investment strategy.
Welcometo the Investor Download, the podcast
about the themes driving markets andthe economy now and in the future.
I'm your host, David Brett.
(00:22):
Despite the flip-flopping of somegovernments and companies on their net
zero ambition, the world is onthe road to decarbonisation.
That means investors arehaving to make decisions, too.
In this show, we speak to two investorsdealing with the challenge of
decarbonising their portfolios and howthey go about creating a
decarbonisation strategy.
(00:47):
On Apple Podcasts,Spotify, or wherever you get your
podcasts, you're listeningto the investor Download.
As the world speeds towards net zero,investors are playing their part, too.
Many people have a personal objectives ormorals and values that they want to
align with their investing objectives.
That's Simon Webber, Head ofGlobal Equities at Schroders.
(01:10):
He sees investors taking an active role indecarbonising their portfolios to help
businesses and governmentsmeet their targets.
But it's not just aboutmoral obligation or desire.
This is about opportunity, too.
Many investors, like myself, believe thatthere is huge potential for alpha
generation on the opportunity side in thetransition to a net zero world, and
(01:34):
avoidance of risk bybeing less exposed to companies that are
laggards or industries wherestranded assets are a major risk.
Generating alpha refers to investments'ability to outperform their market,
thereby generating positiverisk-adjusted returns.
We'll come back to risks shortly.
Stranded assets refer to investments thatbecome economically unviable or obsolete
(01:58):
due to factors such as changes intechnology, environmental
regulations, or market conditions.
There could be many reasons why investorswant to embed sustainability and
decarbonisation in their portfolios.
But I think the key thing is thatinvestors want sustainable
outcomes, not just sustainability.
(02:19):
What's the difference betweensustainability and sustainable
outcomes, I hear you ask.
Sustainability is obviouslyquite a general word.
It may mean different things for differentpeople, but in investment, it's tended to
be about benchmarking, comparinginvestments to one another, or what one
fund or index is doing against another.
Benchmarking can be a bitsubjective, to say the least.
(02:42):
It comes with its issues.
Sustainable outcomes is about measuringfunds, portfolios,
against specific targets.
For example, if a company or a fund has atarget being carbon-neutral by 2030 or
perhaps net zero by 2040,that can be measured.
It could be tracked against, and investorscan hold their portfolio managers
(03:04):
accountable for deliveringagainst that target.
The key point is it's measurableand it's much more objective.
That's a critical factor if investorstruly want to decarbonise
their portfolios.
For many investors, decarbonisationsimply means reducing emissions.
For most, that needs to beachieved by a certain date.
Sounds simple, right?Well, not quite.
(03:26):
Lowering emissions in a portfolio isn'tjust about divesting from fossil fuels or
reducing investments in thehighest emitting assets.
As investors, our portfoliosdon't operate in a vacuum.
That's Ben Popatlal,a Multi-Asset Analyst at Schroders.
Our portfolios operate within the boundsof an investable opportunity set, which is
(03:47):
ultimately set for usby the world at large.
There's a bigger theme at play here: from truly caring about how we treat the (03:50):
undefined
planet to recognising where countries andcompanies have set targets
to achieve net zero by a certain day.It's going to happen.
Decarbonisation for us also means that weneed to understand the world that we
operate in, different parts of the world,regionally, different parts of the
(04:11):
investable universe, about sectors anddifferent companies, will
decarbonise at different speeds.
And so for us, as active managers,decarbonisation means operating within
that universe, in line with the universe,but hopefully in a manner
that avoids the risks associated withclimate change and takes
(04:32):
advantage of opportunities.
Risks can include anything from businessesnot following through on their net zero
commitments to supply chains beingdisrupted by climate events to countries
reneging on their climate promises.
So governments and policymakers canbe a headwind.
I think probably the uncertainty thatcomes with policy can be a headwind.
(04:53):
The red tape that comes with policy,wondering when policy is going to be
enacted, whether there'll be a change ingovernment and a massive
structural change in the way that thegovernment is going to be
pointing their objectives.
And I think when governments are clearabout what their targets are and what
their priorities are, that setsthe scene for individual companies.
(05:17):
It gives companies a licence to set theirown targets and align their
targets with their governments.
And all we're really doing, especially inmulti-asset for our decarbonisation
strategy, all we're doing is aligning ourtarget with the general
target of net zero by 2050.
Managing those risks,dealing with companies and governments
flip-flopping on their commitments, ormoving the goalposts is a hazard that
(05:40):
comes with the territory for investors.
It means they have to be versatile when itcomes to decarbonising their investments.
There's always a trade-offwith everything, basically.
I think that's true, not just aninvestment, but pretty
much in all walks of life.
But we found that the trade-offwith decarbonisation is nonlinear.
That sounds like a technical term, butwhat I mean by that is
(06:01):
you can reduce emissions in yourportfolio, or you can improve the climate
profile of your portfolio to a certainextent without taking on additional
investment risk, without taking ontracking area relative to a benchmark,
and you can push that to a certain amount.
But then if you push it toofar, too fast, if you like.
If you're going much faster than theuniverse will allow you to go, then you'll
(06:25):
start to take on a lot moreactive investment risk.
The key thing is that where you've takenon that active investment risk,
you haven't taken it on because youexpect to be financially rewarded.
Helping investors make the right decisionsand avoid taking on too much risk requires
businesses and governments to play theirpart and to be as transparent as possible.
(06:45):
We are now getting more and more data fromcompanies, and
the disclosure is improving.
It's not perfect, but it's improving.
That's Simon Webber again.
We're getting better data to beable to report on current emissions.
We're getting better data around targetsthat companies are setting so we can build
profiles of where...
(07:06):
If companies deliver on those targets,their mission profile will be going in the
future, and we can aggregatethat up to a portfolio level.
But it's not perfect,which represents a challenge.
What happens if a company isn'tliving up to its side of the bargain?
We get more and more questions aroundindividual companies, around the
engagement that we're doing withlaggards, not just leaders with laggards.
(07:32):
If they're a laggard,are we comfortable with that?
Are we engaging with the company?
If they remain a laggard, how does thataffect our investment view of
the company and the equity?
Clients like to see what it means for themand the portfolio as a whole, what the
trajectory is, what the history has been,and it ends up in good conversations.
(07:57):
You get a lot of insights aboutyour investments from this as well.
So we have our net zero target.
We're looking at the data.
We know the amount of risk we're willingto take, and we know we can engage
businesses failing to liveup to their commitments.
But how do investors go about creating astrategy to meet their
decarbonisation objectives?
That's coming up after the break.
(08:18):
Get in touch with us by emailat schroderspodcasts@schroders.
com or visit our website, schroders.
com/theinvestordownload.
So much information and so many pitfallscan make it difficult to know where to
start when creating a strategyto decarbonise your investments.
(08:38):
But Popatlal says the best place to beginis probably the most obvious place
to look, and that's with policy.
On the fiscal side or on the governmentside, the policy will
create winners and losers.
It will create winners and losers acrosssectors, but also
companies within sectors.
And so I think for us, I mentioned earlieron about emissions and
trying to reduce those.
(08:58):
But to some extent, it's about companiesjust aligning their business models with
the future state of the world thatgovernments are trying to encourage.
So for us, it is about futureproofing your portfolio going forward.
That's probably the main priority.
One proxy for that isemissions or just a simple metric,
(09:22):
something like climate change relatedmetrics that we can track in our
portfolios, and we cansee them in our dashboard.
Those are proxies to help us understandwhether a company or whether a sector
or a region is aligned with some...
Or is future proofed againstgovernment regulation.
If you followed the policy, then there'scertain leavers you can pull as an
(09:44):
investor, particularly ifyou're a multi-asset investor?
Multi-asset investors are fortunate inbeing able to pull lots
of different levers.
You would expect a multi-asset investor topull the lever of asset allocation,
your equities versus bonds.That's something they've always done.
But then I thinkbecoming more important is the
strategy type within the asset class.
(10:06):
Given strategy types within your equityportfolio can do different things for you,
given the objective that they have bothon the investment and sustainability side.
So we pull the asset class lever, we pullthe strategy type lever, but then also
pull the kind of whatwe call the levers for change, which are
trying to drive real-world improvement.
(10:28):
Because as the real-world improves,so we can build a better
portfolio within that world.
So in a way, youcan see that as being refreshingly selfish
way to think about the planet, which isthat we want the planet to improve so that
we can build a betterportfolio within the planet.
And the levers there are engagement.
We've already mentioned that.
(10:49):
We think that's the mostpotent tool for equities.
We can do it in a credit portionof the portfolio as well.
But in the equity space, you'rean actual owner of the company.
The provision of capitaland use of proceeds.
That's something that we think you can doin the fixed income
portion of your portfolio.
So things like greenbonds that you can use.
And then finally, impact is the thirdlever, and we think that's a high bar.
(11:12):
But what if you're nota multi-asset investor?
What if you focus on one assetclass, say equities, for instance?
What do you do then?
Here's Simon Webber again.
Well, there are two main lenses asequity investors we can look at.
One is the carbon footprint, or perhapsmore correctly, the financed
emissions of a portfolio.
(11:32):
We can look at the weighted average ofthose financed emissions, and we can
look at how it declines over time.
Lots of clients andsome portfolios are setting targets to
decarbonize, and you can align that withthe trajectory that the world needs
to be on to meet the Paris Agreement.
Of course, that's what institutions likeSchroders have as a whole, is we
(11:55):
have targets as a business to align.
But that's just one way of lookinga carbon footprint of a company.
That's just one way of looking at it.
A carbon footprint of a company can bevery different depending
on the industry they're in.
But two businesses in different industrieswith different carbon footprint could
(12:15):
still be alignedif they have the right investments and
decarbonisation trajectory ahead of them.
An important tool available to equityinvestors to help them align targets and
companies' delivery on those targets issomething called implied
temperature rise or ITRs.
These ITRs are essentiallytemperature scores that you
(12:38):
turn company targets and companydelivery on those targets into.
Each investment we make will have animplied temperature rise, and then there's
a formula for looking atthat at the portfolio level.
For active management of equities,this is really important because at a big
asset owner level, you might want to belooking at the overall emissions because
(13:01):
you will still be investing rightacross the market over time.
But for one portfolio,like some of the ones I manage,
in a year's time, the really attractiveinvestment opportunities might
be in a higher carbon sector.
The carbon footprint or financed emissionsof one portfolio,
if it's actively managed, should be ableto rise if you're finding opportunities
(13:26):
in these other parts of the market.
But if you're still investing in companiesthat are aligning themselves with the
Paris Agreement, they should still have animplied temperature rise, and the
portfolio as a whole could still have animplied temperature rise that is
consistent with the Paris Agreement.
Papatlal has three pieces of advice toinvestors creating a
decarbonisation strategy.
(13:46):
First, be aware.
Understand that your portfoliodoesn't operate in a vacuum.
The extreme example, as you've alreadygone to, is that we probably can get to
net zero or very close to netzero in the next few years.
But there's a huge cost associated withthat, and that is possibly taking on
massive concentration risk, kicking outentire sectors of the economy,
(14:07):
missing out on loads of opportunities.
Second, don't be afraid.
Pull every lever that you can.
Those are the leavers for drivingreal-world change that I mentioned.
If you are a multi-asset investor,recognise that there's engagement within
equities and credit,possibly with sovereigns too.
And then also real-world impactdecarbonisation solutions, rather than
(14:28):
just looking at the profile of the asset.
And think about what that assetis doing for the real world.
Is it offering solutionsfor the real world?
So that's what those are the higher impactparts of the portfolio that we look at.
Finally, be vigilant.
Put in place a monitoring framework andkeep the monitoring
framework quite simple.
And put everything inone place if you can.
(14:50):
So have a dashboard in front of you thatcan look at the emissions profile, the
intensity profile, the footprint, impliedtemperature rise, and any other metrics
that matter to you as the investor.
Try and get them all into one place orinto a small number of tools so that you
can have a monitoring framework thathelps you keep on track of your portfolio.
Again, don't over complicate it.
(15:11):
Keep it simple, but be ontop of it all the time.
That was the show.
We very much hope you enjoyed it.
You can subscribe to the InvestorDownload wherever you get your podcasts.
And if you want to get in touch withus, it's Schroders podcasts@schroders.
com.
And you can find out much,much more at schroders.
com/insights.
New shows drop every otherThursday at 05:00 PM UK time.
(15:35):
In the meantime, keep safe and go well.
The value of investments and the incomefrom them may go down as well as up, and
investors may not get back theamounts originally invested.
Past performance is not aguide to future performance.
Information is not an offer, solicitation,or recommendation of any funds, services,
or products, or to adoptany investment strategy.
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
24/7 News: The Latest
The latest news in 4 minutes updated every hour, every day.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com