Our new report explains how we are preparing for the risks and opportunities presented by climate change.

  • We have witnessed a plethora of pledges from both companies and politicians to tackle climate change, but real, decisive action supporting the pledges to reduce emissions has yet to surface.
  • The investment industry must consider how capital can be allocated positively, facilitating both a timely and just low-carbon transition, as well as delivering returns to clients.
  • Our new TCFD (Task Force on Climate-related Financial Disclosures) report explains how we analyse and manage climate-related risks and opportunities in our clients’ investments and across our business. Recent highlights include setting up a climate change-focused investment group to undertake climate scenario analysis, entering into new data relationships with carbon experts, and creating our first climate-change voting policy.

During 2019, global focus on climate change greatly intensified. Global surface temperatures were the second warmest since records began,greenhouse-gas emissions were the highest in history,2 and a number of extreme weather events attracted global media coverage, ranging from widespread wildfires in Brazil and Australia, to severe flooding in Jakarta and the Midwest United States, and abnormal cyclones in India and Bangladesh.

In light of such events there has been a rise in climate-change activism, as epitomised by Greta Thunberg. We have also witnessed a plethora of pledges from both companies and politicians to tackle climate change, but real, decisive action supporting the pledges to reduce emissions has yet to surface. The uncomfortable truth is that our entire economy is based on fossil fuels, and therefore moving to a low-carbon future will affect all sectors. Furthermore, having emitted the bulk of the emissions to achieve economic growth and raise living standards, the West finds itself in the Janus-faced position of asking the developing world to reduce their emissions and perhaps by extension limit their ability to deliver growth and lift people out of poverty.

As CEO of a long-term, global active investment manager, the lack of global as well as public/private sector collaboration and ambition to mitigate climate change is deeply concerning. Science tells us that climate change could result in a deterioration in investment performance in some sectors, either as the world moves to a low-carbon future, or – more concerningly – as the growing physical impacts of global warming negatively affect the economy and society.

Managing the transition

Emissions must be reduced, and heavy industries will have to adapt; the management of transition risk, as well as the real and imminent cost of stranded assets, is key to securing the future. Conversely, new technologies and solutions have the potential to offer promising investment opportunities, should they receive clear governmental and regulatory support. However, the lack of clear policy direction has left many investors uncertain and unwilling to commit capital.

Focusing specifically on the investment industry, several critical questions arise. How can capital be allocated positively, into attractive investments, facilitating both a timely and just low-carbon transition, as well as delivering returns to clients? How can those who invest in fossil-fuel companies influence these businesses to reallocate capital to less carbon-intensive energy sources, particularly as the coronavirus pandemic means that economies are now facing an extended period of uncertainty?

These are complicated questions, without simple or obvious answers, but our generation must begin to answer them, and very soon.

I commissioned Newton’s first TCFD report for 2017 to ensure that we were holding ourselves to the same standards as our investee companies, and specifically to explain how we were considering, and preparing for, the risks and opportunities presented by climate change.

Following the first report, I am delighted that we have now published our second TCFD report which combines updates from 2018 and 2019, during which period we have made a number of positive changes. Highlights include establishing board-level oversight of Newton’s actions on climate-related risks, entering into new data relationships with carbon experts, undertaking significant internal education, and establishing a climate change-focused investment group to undertake climate scenario analysis.

Pushing for change

As active, purposeful, owners, we have been using our voting rights to push for change at AGMs. A highlight in 2019 was that, for the first time, Newton co-filed a special shareholder climate-change resolution at BP’s 2019 AGM calling for greater disclosure and climate action. We have also created our first climate-change voting policy, which will commence this year, voting against chairs of companies that have inadequate climate-change disclosures, strategies and carbon-emissions performance. We have focused company engagements on material questions regarding transition plans, scenario analysis, disclosures and credit policies. However, there is of course much more we plan to do over the coming years.

Climate change is a complex and global problem, raising difficult questions to which we do not hold all the answers. However, it is through continued engagement with investee companies, alongside considering related risks and opportunities, that we seek to ensure we are fulfilling our purpose as good stewards of capital on behalf of our clients, as well as living up to the same standards to benefit our employees and shareholders.

Your capital may be at risk. The value of investments and the income from them can fall as well as rise and investors may not get back the original amount invested.

1 https://www.carbonbrief.org/state-of-the-climate-how-the-world-warmed-in-2019 (20 January 2020)
2 https://www.wri.org/blog/2019/12/co2-emissions-climb-all-time-high-again-2019-6-takeaways-latest-climate-data (3 December 2019)

This is a financial promotion. Issued in the UK by Newton Investment Management Limited, The Bank of New York Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Registered in England No. 01371973. Newton Investment Management is authorised and regulated by the Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN and is a subsidiary of The Bank of New York Mellon Corporation.

These opinions should not be construed as investment or other advice and are subject to change. This material is for information purposes only. Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell investments in those securities, countries or sectors. Please note that holdings and positioning are subject to change without notice.