Climate Portfolio Analysis: A Multifaceted Approach to Risk

JUNE 24, 2019

Climate portfolio analytics allows investors to assess and monitor risk exposure related to several climate-related issues, including emissions exposure, and physical and transitional risk. This article demonstrates the benefits of portfolio analysis related to climate change risk by providing a comparison of greenhouse gas emissions and climate risk exposure between the S&P 500 and the STOXX 600 indexes at the end of 2018. The absolute emission exposure of the S&P 500 is approximately 45 percent lower than the emission exposure of the STOXX 600, but STOXX 600 companies manage climate risks better than S&P 500 companies. A review of absolute emissions can help investors identify the largest greenhouse gas emitters in a portfolio today, but a more comprehensive forward-looking analysis is required to identify the climate leaders and laggards of tomorrow. Emissions estimations coming from the activity of the company and climate risk management are among the recommended disclosures included in the Guidelines on reporting climate-related information published by the European Commission on June 18th 2019.

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