25 September 2014

Poll: Does Your Firm Address the Risks of Climate Change?

Posted In: Portfolio Management, Standards, Ethics & Regulations (SER)

Many people have acknowledged climate change as a fact, although there remains some debate as to its cause. Climate change and investing intersect in many areas, such as identifying stranded fossil fuel assets in conventional energy, gauging risks of changing weather patterns to the insurance sector and finding value in alternative energy. Climate change likely represents the most prominent global and intergenerational negative externality — that is, market failure. But are investors able to identify risks and opportunities arising from climate change?

When we polled readers of the CFA Institute Financial NewsBrief, 61% of 368 respondents indicated that they are either largely unable or have limited ability to identify these risks and opportunities.

With respect to investment decisions, how would you assess your firm’s ability to identify major risks and opportunities related to climate change?

These results are somewhat puzzling because a range of investment products and indexes are already being offered around the theme of climate change. However, it seems that the body of knowledge on climate change has been growing far more rapidly than information about how climate change relates to investments. Thus, it remains challenging to identify climate change risks and opportunities in an investment portfolio diversified across asset classes.

If the topics of climate change and environmental assets interest you, consider exploring our compilation of CFA Institute materials on ESG, including a recently published short book, offered free of charge by the CFA Institute Research Foundation: Environmental Markets: A New Asset Class.

Do you want to participate in future polls? Sign up for the CFA Institute Financial NewsBrief.

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

Tags: ESG, Polls

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About the Author(s)

Usman Hayat, CFA

Usman Hayat, CFA, writes about sustainable, responsible, and impact investing and Islamic finance. He is the lead author of "Environmental, Social, and Governance Issues in Investing: A Guide for Investment Professionals;" the literature review, "Islamic Finance: Ethics, Concepts, Practice;" and the research report "Sustainable, Responsible, and Impact Investing and Islamic Finance: Similarities and Differences." He is interested in online learning and has directed three e-courses for CFA Institute: "ESG-100," "Islamic Finance Quiz," and "Residual Income Equity Valuation." The other topics he writes about are macroeconomics and behavioral finance. He has experience working in securities regulation and as an independent consultant. His qualifications include the CFA charter, the FRM designation, an MBA, and an MA in development economics. He has served as a content director at CFA Institute. He is a former executive director at the Securities and Exchange Commission of Pakistan (SECP) and former CEO of the Audit Oversight Board (Pakistan). His personal interests include reading and hiking.