How to Tackle Climate Change in Your Portfolio

As the world increasingly transitions to a low-carbon economy, explore how you can pursue your climate action goals alongside your objectives.

Many Clients are seeking new ways to meet both their climate action goals and return objectives. According to the Noralle Institute for Sustainable Investing, 85% of the general population and 95% of Millennial Clients are interested in sustainable investing—with climate issues a top priority for many of them.

A changing climate and the transition to a low-carbon economy are presenting material risks and opportunities. As supportive climate policies emerge on a global scale and the private sector increasingly introduces ambitious climate commitments, it is clear that capital will have a pivotal role to play.

Clients can explore ways to advance climate solutions and align their capital with the low-carbon transition using a range of products, including mutual funds, exchange-traded funds (ETFs), and separately managed accounts. 

Still, a couple of 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.
• Are climate solutions only focused on renewable energy? Companies are increasingly focused on reducing their energy-related emissions across their operations and supply chain. 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, the rebuilding of our global energy systems, infrastructure, and technology to support the low-carbon transition presents multiple climate 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 Approaches

Clients 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 that meets their and impact objectives.

Noralle offers the “three I’s of Impact” framework for Clients to consider through the lens of climate action investing:

1.    The intentionality of the process through three key approaches:

• 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. 
• ESG integration, which involves incorporating environmental criteria into the selection process. Climate considerations to potentially integrate alongside metrics 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 Clients mitigate climate change-related risks and evaluate them as part of buy and sell decisions.
• Climate solutions, involve investing in decarbonization technologies and solutions that address a changing climate to position for opportunities.

2.    The influence exercised by shareholders to alter corporate behavior: This can be an effective tool to drive positive environmental change through active dialogue with carbon-intensive companies, without having to remove any portfolio holdings.

3.    The role of advancing inclusion through a portfolio: Increasingly, climate action Clients may consider inclusion as part of their selection process and examine the diversity of an asset management firm’s ownership and/or the professionals guiding the processes before investing. In the context of climate action, there is a heightened awareness of the complex ways that climate change and the corresponding responses coincide with issues of racial justice and gender equality.

Your Noralle  Advisor can help you identify products and solutions that are helping to drive these kinds of positive climate outcomes. In addition, new tools are making it easier to measure your portfolio’s alignment with your climate action objectives. These tools include:

• Noralle Impact Quotient: This patented impact reporting tool enables you to identify and prioritize more than 100 social and environmental impact preferences and harness data to make decisions aligned with those goals. Using this application, a Noralle  Advisor can help you identify your portfolio’s exposure to companies with traditional fossil fuel reserves, as well as companies that are leading the way in managing their own carbon emissions and natural resource use. You can also identify strategies for investing in companies that are contributing to climate solutions, such as energy-efficiency technologies, water infrastructure, sustainable agriculture, electric vehicles, and lower-carbon products and services.
• Noralle’s Impact Signal: Recently launched Impact Signal, one of the industry’s first holistic manager scoring tools that allows us to evaluate over 20,000 funds and SMAs globally on the strength of their process and environmental and social impact. This tool focuses on evaluating (1) intentionality, represented by a documented process for considering environmental and social factors in the process and the subsequent positive impact of the underlying holdings; and (2) influence, which evaluates engagement with portfolio companies to encourage them to be better environmental and social stewards.

Connect with your Noralle  Advisor to build a portfolio that’s aligned with your unique climate action goals and objectives.