The Montreal Carbon Pledge, established in 2014 as a commitment by investors to annually measure and publicly disclose their portfolio’s carbon footprint — that is, the impact on the greenhouse gases that contribute to global warming, has helped investors to better understand, quantify and manage carbon and climate change related impacts, risks, and opportunities.
Tools such as Climetrics, a climate impact rating for funds, can provide investors with useful insight on the climate change impact of funds’ portfolio holdings, as well as asset managers’ own applications of climate impact as an investment and governance factor.
Last year, Climetrics published a list of the most climate-responsible retail funds. Based on a variety of factors including the climate change impact of its portfolio holdings, as well the asset manager's own application of climate impact as an investment and governance factor.
This will enable investors to gauge and compare the climate impact of investments in funds and potentially encourage growth in climate-responsible fund products.
The transition to a low-carbon economy will require a huge paradigm shift across the global capital markets.
Faced with this new reality, investors have to start asking themselves the following: Will my current investments make sense in a 2-degree world? How can I readily identify the major risks and opportunities in my investments as the world transitions to a low-carbon economy?
Investing in green bonds
The green bond market worldwide has been growing at a massive rate. Over the course of just one year - 2017 - new green-bond issuance grew by 78 per cent, to more than $155bn worldwide. That number is expected to reach $250bn in 2018, according to the Climate Bonds Initiative.
Green bonds generate financing for projects in renewable energy, energy efficiency, sustainable housing, and other eco-friendly industries. They harness the trillions of dollars held by institutional investors such as pension funds, insurance companies, and sovereign wealth funds and turn these into projects that make good business sense.
Green bonds traditionally were only available to institutional investors. But that is no longer the case. There are ways that small investors can buy green bonds - through Exchange Traded Funds and also through mutual funds that purchase green bonds.
When it comes to sustainability vehicles generally, there are many options available for retail investors, including direct ownership of stocks, and community-oriented cash, fixed income products and investments in defined contribution plans.
Investors do need to be aware that for some vehicles such as green bonds, given that the projects involved have a long-term time horizon, they may have to wait for some time before they see large profits.
More investment vehicles for retail investors
Increasingly, more tools for retail investors who are concerned about climate change risks are coming on to the market. For example, this year, Legal & General Investment Management launched a unit trust version of its Future World index tracker fund for retail investors.
