How to tackle climate change in your portfolio
Morgan Stanley Wealth Management01/11/23
Summary: As the world increasingly transitions to a low-carbon economy, explore how you can pursue your climate action goals alongside your financial objectives.
Many investors are seeking new ways to meet both their climate goals and financial objectives. According to the Morgan Stanley Institute for Sustainable Investing, 85% of the general population and 95% of Millennial investors are interested in sustainable investing—with climate issues a top priority for many of them.
Investors can explore ways to advance climate solutions and align their investments with the low-carbon transition using a range of products, including mutual funds, exchange-traded funds (ETFs), and professionally managed accounts.
Still, a couple key questions may be top of mind for those looking to make a positive environmental impact with their money:
Aren’t governments primarily driving efforts to reduce carbon emissions?
Governments play a key role, but it will take both public- and private-sector commitments to reduce carbon emissions at the scale necessary. Corporations continue to make major commitments to reduce carbon emissions and aid the transition to a low-carbon economy across all industry sectors. According to the nonprofit Science Based Targets, more than 1,900 companies globally have committed to reducing their carbon footprint.1
Are climate-solution investments only focused on renewable energy?
Companies are increasingly focused on reducing their energy-related emissions across their operations and supply chains. For example, more than 350 of the world’s most influential companies have committed to sourcing 100% of their global energy needs from renewable sources.2 That said, rebuilding global energy systems, infrastructure, and technology to support the low-carbon transition presents multiple climate investment opportunities outside of just renewable energy. These include electric vehicles, smart grids, energy storage, green hydrogen, and carbon capture, to name a few.
Climate action investment approaches
Investors seeking to mitigate climate change-related risks and identify opportunities that aid in the transition to a low-carbon economy have a variety of ways to develop a climate action investing strategy:
- Restriction screening, which involves reducing or seeking to eliminate exposure to companies tied to coal, oil, gas, and other high greenhouse-gas-emitting energy sources and activities to mitigate risks associated with these investments as the world shifts toward cleaner energy sources.
- ESG integration, which involves incorporating environmental criteria into the investment selection process. Climate considerations to potentially integrate alongside financial metrics in order to identify environmental leaders include a company’s carbon footprint, use of natural resources, and the amount of revenue derived from products or services that provide climate solutions. This approach can also help investors mitigate climate change-related risks and evaluate them as part of buy and sell decisions.
- Investing in decarbonization technologies and solutions that mitigate the effects of climate change and aid in the transition to low-carbon economy in order to position for potential opportunities.
The source of this article, How to Tackle Climate Change in Your Portfolio, was published on December 7, 2022.
- Science Based Targets, “Companies taking action,” November 2022. https://sciencebasedtargets.org/companies-taking-action/
- The RE100, RE100 Members, https://www.there100.org/re100-members