How can investors seek to ensure portfolios are well positioned for a changing climate?

• Rising global temperatures and an increase in extreme weather events have highlighted the urgency of tackling the climate emergency, while the Covid-19 crisis has put further pressure on the fossil-fuel industry.
• In this context, it will only become more important for investors to ensure climate-related risks and opportunities are reflected when constructing portfolios.

Newton Investment Management uses a variety of approaches to identify climate-related risks and opportunities; these are incorporated into their idea generation, ESG analysis, company engagement, voting, product design and thought leadership. While the news agenda may currently be dominated by Covid-19, the global focus on climate change had been intensifying prior to the outbreak of the pandemic, as rising global temperatures and greenhouse-gas emissions, together with an increase in extreme weather events, have highlighted the urgency of tackling the climate emergency.

This year, as severe restrictions have been imposed on the global economy as a result of the efforts to curb the coronavirus, the fossil-fuel industry has faced a collapse in demand. With the energy transition already gathering pace in recent years, this demand may never fully recover, especially as renewable-energy output continues to grow. Furthermore, as people have experienced the benefits of reduced emissions and cleaner air during lockdowns, there is likely to be growing pressure on policymakers to make the climate a priority.

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