GIC looks to integrate climate change into investment portfolio

SINGAPORE (THE BUSINESS TIMES) – Sovereign wealth fund GIC will integrate climate change into its investment portfolio, a report noted today (Oct 14).

This will involve evaluating the way long-term capital market assumptions are affected by climate change drivers and under different climate change scenarios.

GIC is also ensuring that its investment teams integrate climate change considerations into their processes. Analysts tap environmental metrics to identify risks and conduct further due diligence and engagement with companies.

Ms Rachel Teo, who heads the futures (research) unit and is senior vice-president of economics and investment strategy, said in the report that GIC will not just bluntly divest firms with high-carbon intensity.

“We would instead seek to engage and understand if the companies have plans to transit to a lower carbon business model, and will support them in their transition path towards long-term sustainability,” she wrote.

The focus for GIC will also be on areas such as renewable energy, green buildings, sustainable food and agriculture, electric mobility and other emerging technologies that will facilitate a decarbonisation of the global economy.

This strategy is being reflected elsewhere.

Mr Bob Litterman, chairman of the risk committee at investment adviser Kepos Capital, noted in a separate report that investors should be “highly concerned about the underlying policy uncertainty” with the reality of climate change now obvious.

Yet, he said, investors have not taken into account the broader risks that exist across their entire portfolio.

Mr Litterman noted that all asset classes and most economic sectors are exposed to the risk of a rapid transition to a low-carbon economy.

To be sure, fossil fuel company valuations are highly sensitive to this risk. But there are many other companies and industries that will be impacted and whose business models or assets are also at risk of being stranded, he added.

Mr Litterman noted that there are “strong opportunities to generate additional returns” as the transition towards a net-zero emissions economy will also create new technologies and business models.

“In fact, I suspect that transitioning to a net-zero economy, adapting to the new climate reality while building a sustainable economy, and simultaneously sucking carbon dioxide out of the atmosphere at the required scale will be the investing themes of the next several decades.”

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