THE TRANSITION RISK OF YOUR INVESTMENT
Climate change has become a concern for all! In this sense, we must act for a carbon-free world, requiring greener investments and less carbonated portfolio strategies.
Several strategies have been implemented to achieve a prosperous, modern, competitive, and climate-neutral economy. In terms of climate policy, the EU has issued Carbon Permits in 2005. Since then, the increasing cost of the carbon emission related to emissions gives a measure of the “Transition risk” – the risk related to a shift toward a low-carbon economy. In Europe, Carbon emissions are a central part of SFDR reports required for articles 8 and 9 products.
Each company emitting greenhouse gases (GHG) has a liability that can be measured through the Carbon Permit price. AMINDIS R&D department developed a methodology* helping investment managers to measures the transition risk of their portfolio and identify the most exposed holdings.
*Published in the Journal of Performance Measurement
How to improve your portfolio investment?
The actions that companies will put in place to mitigate climate challenges, cannot be perfectly known in advance. However, by focusing on low-emitting securities, AMINDIS's methodology measures the impact of over/underweighting carbon-emitting sectors and securities on the return of the portfolio. Our approach provides a better understanding of the challenges in the medium and long term of the low-carbon transition.
The methodology can be used for different purposes in the investment management process:
1. Ex-ante risk assessment
2. Portfolio optimisation by reallocating securities to lower
the transition risk
3. Stress testing
4. Portfolio reporting (client and regulatory)
5. Back testing the carbon reduction trajectory
The only solution allowing you to solve the Impact, Risk, Return equation with a holistic view across all business functions for premium investment decisions!