This is about protecting investors against climate change
If you are a millennial or younger, having a 2050 target date to reach net zero makes a lot of sense. Many people in this age cohort expect to retire after this date. The risk these investors face is that they might not be able to retire – climate change could jeopardize the performance of their pension portfolios in the coming decades. On top of this there is a risk that they would retire in a world where the quality of life has rapidly declined due to the negative effects of climate change.
Markets often do not fully price in climate risk so far ahead. This is because the timing of the potential impact is difficult to pinpoint exactly. The complexity of the topic, meanwhile, makes it challenging for the average investor to act upon it today.
Progress has been made, however, through improved reporting on the impact of climate change on investments. For instance, the Task Force on Climate-related Financial Disclosures (TCFD) has set standards for companies to provide clear, comprehensive, high-quality information on the impact of climate change. This mandatory disclosure is currently being discussed by regulatory authorities.
In my view as an asset manager, beyond regulations and reporting frameworks, we also need to help investors achieve their goals through our guidance. We should do this no matter how long the time horizon and how complex the topic. By building portfolios that manage climate risks properly and by investing in solutions for the energy transition, we can help serve investors well. This approach can help deliver returns that are attractive, sustainable and long-term, and support the transition to a more sustainable and net-zero society.