We’re breaking down the main buckets available investors with less domain expertise, but saavy when it comes to asset allocation. This will be the first part of a series as we break down the 5 sub-sectors here.
The big picture:
Private markets typically provide the best access to ecological themes that are all directly linked to climate change, including renewable and alternative energy, energy efficiency, water infrastructure and technology, pollution control, waste control and technology, environmental support services, and renewable resource management.
Listed equities may also provide access to some of these, together with broader sustainability themes, including financial and health services as”social” topics. Access via recorded or unlisted options will depend on the client factors, such as portfolio diversification that is current, liquidity, fee budgets, time frames, and accessibility of the themes. Low-carbon equity equities, passive and active, are expected to out-perform low-carbon financial transition, together with very-low tracking versus parent indices. They are focused solely on minimizing policy-related risk, typically by decreasing exposure to the high-carbon emitters (by way of instance, utilities) and fossil fuel book owners (for instance, oil and gas stoves ).
Fossil-fuel-free equity
Fossil-fuel-free (FFF) equities (defined here as excluding fossil fuel reserve owners), passive and active, are also predicted to insulate portfolios from stranded asset risk in a low-carbon financial transition, even though this risk-protection benefit is predicted to be more less-reliable than a low-carbon strategy since an FFF portfolio maintains vulnerability to high-carbon emitters. Tracking error might also be greater depending upon the re-weighting mechanisms used.
Sustainable public equity
Sustainable equities, primarily accessible in strategies, are expected to be more well-positioned from a policy point of view but also catch upside from a transition through vulnerability to solutions suppliers.
Sustainable private equity
Equity that is sustainable is a combination of venture, growth, and buyout funds focused on investments in companies with significant engineering dangers and exposure to environmental themes. Funds may be generalist sustainability managers or sector-focused (for instance, food and agriculture).
Sustainable infrastructure
Sustainable infrastructure consists of a broad range of alternatives and projects, including renewable energy, that would be anticipated to gain from clean innovation and policy actions to fight emissions. In the same way, sustainable infrastructure would benefit by preventing exposure to assets that may become stranded.
Green bonds
Issuances, but more corporate issuances, currently dominating the bond market are expected going forward. Corporate green bonds will be issued by associations that have, in general, proactive climate risk management practices overall and thus may be susceptible to default hazard. But on balance, fundamental risks for example credit quality and interest rates are likely to dominate, making our expectations of green bonds the same as for typical global-investment- tier debt.
