Climate Scenario Analysis for Equities

The physical manifestations of climate change are negatively affecting ecosystems, human health, and economic infrastructure. And much more disruptive outcomes are coming, even if the world is able to keep global temperature increases to 1.5° above pre-industrial levels.

Meanwhile, the growing array of policy initiatives, private sector commitments and technology advances aiming to constrain greenhouse gas emissions and limit climate change are profoundly changing energy systems and patterns of economic activity.

Understanding Energy Transition

Realistically, the transition will be uneven across sectors and geographies. Because the politics of climate mitigation varies considerably across the major economies, and abatement opportunities vary significantly across sectors, the transition is likely to proceed at different rates.

Nevertheless, it is vital that investors understand how physical climate change and the energy transition affect the investment returns of the companies and markets they invest in. In addition, they need to be cognizant of the actions, as well as inactions, by policy makers and regulators to align with the goals of the Paris climate agreement.

The unevenness and uncertainties have only fuelled the difficulties of understanding the impact on investment portfolios.

Impact of Climate Risk on Asset Prices

Assessing the investment risks and opportunities associated with climate change is nothing new. However, we have often had to rely on public and backward-looking data.

Take the evolution of a company’s carbon footprint. It may be useful in helping us understand a firm’s current and past exposure to carbon risk. But it doesn’t answer the biggest question: Is the business well-positioned for the future?

The risks and opportunities associated with climate change are greatest at the company level (rather than at the regional, national or sector levels). This is where the dispersion in outcomes is most pronounced.

Climate Scenario Analysis

Scenario analysis involves modelling the effect of a range of plausible climate pathways on asset prices. This may include accounting for different government policies, carbon prices and alternative technology development.

It allows us to rigorously assess the impact of climate change in our investment decisions.

In this webinar with abrdn’s Camille Simeon, Investment Director for Australian Equities, we will examine these issues:

Utilising scenario analysis to frame forward-looking impact of climate change on companies
Stress testing companies’ climate transition strategy, transparency on the risk to assets and targets to reduce emissions.
Building a dynamic climate scenario framework to identify multidimensional risks that are difficult to capture and empirically analyse using historical data and linear models.
Synthesising actionable insights to implement buy/sell/hold investment decisions, accounting for ‘unknown unknowns’
Integrating scenario analysis with the shareholder engagement program

Presenter

Camille Simeon is an Investment Director on the Australian Equities Team at abrdn with portfolio management responsibilities for the Australian Equities Funds and stock analyst covering the mining, energy and technology sectors.

Camille is the global equities representative on the steering group for the Abrdn Climate Scenarios Analysis Tool. Camille joined Abrdn in April 2008. Previously, Camille worked at Citi Australia, where she was a Vice President, Institutional Equity Research Sales. Camille has also worked at Foster Stockbroking, BNP Paribas and Burdett Buckeridge Young.

Camille graduated with a Bachelor of Business from University of Technology, Sydney and Post Graduate Diploma in Applied Financial Analysis from the Securities Institute of Australia.