How Climate Change Impacts Investment Returns

Carbon risk describes how vulnerable a company or industry is to the transition away from a fossil fuel-based economy as the threat of climate change drives regulation

Jon Hale 31 January, 2019 | 10:12AM

Fossil fuels

The key question for sustainable investors is: how vulnerable is a company to the transition from a fossil fuel based economy to a lower carbon one? 

Understanding carbon risk in a portfolio can help investors make better decisions. Investors typically do not know the extent to which a portfolio is exposed to carbon risk. While a portfolio’s exposure to fossil fuels is a major component of its carbon risk, a much wider range of industries, approaching half the overall global market capitalisation by some estimates, have exposure to carbon risk through trends like the shift to renewables or electric vehicles.

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About Author

Jon Hale  Jon Hale is a consultant with Morningstar Institutional Investment Consulting.

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