CLIMATE RISK

Assessing carbon impact: understanding and managing the carbon risk of your investments

 

Estimated reading time: 6 min.

 

Assess and analyze the carbon risk embedded in your portfolio to support the transition to a low-carbon economy

Climate change is an urgent global challenge requiring a transition towards greener investments and low-carbon portfolio strategies. With increasing regulations and carbon pricing mechanisms, investors need tools to assess and manage the carbon risk in their portfolios effectively.

This article covers:

 

 

UNDERSTANDING THE TRANSITION RISK OF YOUR INVESTMENTS
 

Every company emitting greenhouse gases (GHG) carries a financial liability linked to carbon certificates, reflecting the cost of carbon emissions. This cost represents a part of the transition risk—the risk tied to the shift towards a low-carbon economy.

AMINDIS’s R&D department has developed a methodology to help investment managers quantify this risk and identify holdings most exposed to carbon transition challenges.

 

Discover more about our methodology

 

 

 

 

IMPROVING YOUR PORTFOLIO STRATEGY THROUGH CARBON RISK ANALYSIS
 

Predicting precisely how companies will act to reduce their emissions is complex. However, focusing on low-emitting securities and measuring the impact of over- or underweighting carbon-intensive sectors allows investors to better understand medium- and long-term transition risks.

This approach supports multiple investment management activities:

  • Ex-ante risk assessment
  • Portfolio optimization via reallocation to lower transition risk securities
  • Stress testing portfolio resilience
  • Client and regulatory reporting
  • Back-testing carbon reduction trajectories

 

How to improve my investment process

 

 

 

 

CARBON PERFORMANCE ATTRIBUTION: MEASURING THE IMPACT OF CARBON ON RETURNS
 

As investors incorporate climate indicators into their portfolio construction, linking these indicators directly to carbon gains enables a precise measurement of the impact of carbon reduction strategies on performance.

The methodology calculates the carbon cost and highlights how carbon emissions influence portfolio returns, supporting more transparent and informed investment decisions.

 

Find out more about the new approach

 

 

 

HIGHLIGHT ON CARBON FOOTPRINT
 

Integrating carbon footprint considerations provides several benefits, aligned with the New I.R.R. (Impact, Risk, Return) framework that measures interactions between sustainability, financial return, and risk.

Key advantages include:

  • Requires limited data for implementation

  • Enables immediate issuer comparison within sectors

  • Clarifies correlation between portfolio performance and sustainability positioning

  • Assesses company business model quality by factoring out carbon cost

  • Highlights management quality regarding carbon objectives in investor communications

  • Allows carbon cost adaptation based on company- or sector-specific factors

     

Understand the carbon impacts of securities

 

A HOLISTIC APPROACH TO CARBON RISK MANAGEMENT
 

Successfully managing carbon risk requires integrating impact, risk, and return considerations across all business functions. A comprehensive, data-driven methodology empowers investors to make premium investment decisions aligned with climate objectives and regulatory demands.

 

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