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As we approach 2022 and the momentum behind decarbonization and net-zero objectives builds around the world, asset owners are increasingly engaged in addressing the investment implications of climate change. The focus thus far has largely been on implementation at the security- and manager-selection levels, but there is a growing recognition of the need to factor climate change into broader investment policy and asset allocation decisions.
Our Investment Strategy Team, in partnership with our Climate and ESG teams, has developed a framework for integrating climate change and its capital-market effects into multi-asset portfolios. We had a simple but important philosophical starting point for this work: We believe climate change impacts investment outcomes. It impacts macro-level variables, such as GDP growth and inflation; company-level dynamics, such as costs and future company activity; and decisions about regulation and fiscal policy. These, in turn, all impact asset prices.
The complexity of climate change and its effects requires a clear framework for systematically organizing, researching, and integrating climate change in multi-asset portfolios. Ours consists of three pillars:
Climate change investing remains a top priority for the firm for 2022. In response to increasing challenges arising from climate change and growing client interest in climate solutions, we have expanded our climate investing offerings to include late-stage private equity, market-neutral (long/short) strategies, and adaptation-focused equities. Our broadening agenda for 2022 with Woodwell Climate Research Center may include research into biodiversity, forestry, agriculture, and new climate solutions. Finally, we plan to strengthen our efforts related to climate engagement, using our role as an active owner to encourage companies to improve climate reporting and disclosures and establish credible transition plans.