Although many institutional investors have incorporated climate change metrics in their bottom-up, security selection process, it is equally important to understand the implications of global warming on the asset allocation of a multi-asset portfolio.
For example, academic literature shows that temperature deviations from historic trends correlate with lower economic growth, and that more pronounced temperature swings even tend to correlate with lower equity returns.
Climate change will also have a different impact on different regions, countries and sectors, and investors will need to make decisions as to how to best build resilience into their portfolios.
Climate & Asset Allocation
In this investor roundtable, we will take a look at the merits of climate aware asset allocation. Research by Wai Lee, Global Head of Research at Allspring Global Investments, has shown that three asset classes in particular could help basing an asset allocation on climate aware capital market assumptions: global equities, credit and futures overlays.
In this investor roundtable, co-hosted with Allspring Global Investments, we will address:
- Is there such a thing as a “greenium” – the concept that investors are willing to pay extra or accept lower returns/yields in exchange for sustainable impact?
- Is there a correlation between temperature swings, economic activity and equity returns?
- If climate change lowers growth and increases uncertainty, should we then lower our investment objectives or increase the allocation to riskier assets, including equities and credit?
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Established in 2012, The Investment Innovation Institute [i3] launched its Educational Programs portfolio for Australian superannuation funds and insurance companies, with a focus on investment strategy and governance. In recent years, it has added programs for Asian investors, staging forums in China, Hong Kong and Singapore. A portfolio construction stream for pension and sovereign wealth funds in the Pacific island region was subsequently developed, hosted in Fiji and New Zealand.
In addition, [i3] runs asset class-specific forums for equities, alternatives, fixed income and real estate professionals. The [i3] Luncheon series, often featuring thought-provoking academic research, has proved to be immensely popular too.
In 2020 [i3] launched its Digital programs, complementing the in-person forums.
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