{"id":9511,"date":"2024-04-11T16:02:07","date_gmt":"2024-04-11T15:02:07","guid":{"rendered":"https:\/\/sarasinandpartners.com\/za\/think\/the-devils-in-the-detail-spotting-climate-winners-and-losers\/"},"modified":"2024-05-31T16:23:10","modified_gmt":"2024-05-31T15:23:10","slug":"the-devils-in-the-detail-spotting-climate-winners-and-losers","status":"publish","type":"post","link":"https:\/\/sarasinandpartners.com\/za\/think\/the-devils-in-the-detail-spotting-climate-winners-and-losers\/","title":{"rendered":"The devil\u2019s in the detail: spotting climate winners and losers"},"content":{"rendered":"

We get to know our companies comprehensively. When it comes to climate change, we use a proprietary, forward-looking approach to weighing individual companies\u2019 prospects as the world warms.<\/strong><\/h3>\n

Active investment managers spend a lot of time assessing the outlook for individual companies. But when it comes to estimating how climate change might improve or seriously impair a company\u2019s prospects, it is often assumed that homogenous assumptions can be applied across the board.<\/p>\n

For example, an estimated price for carbon emissions in 2030 might be applied to all companies being analysed, regardless of their plans to reduce carbon emissions, their competitive position, or whether such a carbon price is likely to apply in the jurisdiction where they operate.<\/p>\n

Similarly, companies\u2019 carbon footprints are often used as a guide to climate risk exposure, but these can only tell us about emissions today. They are not helpful in assessing what a company\u2019s emissions might look like in five, or ten years\u2019 time.<\/p>\n

The reality is that climate change will affect individual companies in a much more nuanced way. This is partly because its effects will differ across the globe. The picture becomes increasingly complicated when we consider individual companies\u2019 plans for decarbonisation, likely government policy responses in different regions, societal preferences and access to technology that can help alleviate the effects of a warmer world.<\/p>\n

Faced with this, some investors consider climate impacts too complex and intangible for meaningful analysis. We beg to differ. To our mind, it calls for two key attributes of sound active management: professional judgement and investment experience.<\/p><\/blockquote>\n

The key to making sense of how climate change affects individual companies lies in gaining insight on company-specific climate data and then quantifying our findings before incorporating them into traditional financial analysis. We do not expect to achieve perfect predictions, but our findings can help in two important ways \u2013 avoiding major risks and uncovering misunderstood investment opportunities.<\/p>\n

Staying focused on the big picture<\/strong><\/h3>\n

With global tensions growing and question marks hanging over the economy, it is natural for investors to focus on what they believe to be near-term risks, at the expense of addressing what are perceived to be longer-term risks. However, climate change is already happening around us; the markets\u2019 failure<\/a> to recognise this has the potential to wreak damage on all economic activity and on our quality of life.<\/p>\n

Climate change will affect how all companies do business<\/a>, not just the carbon-intensive companies that most readily spring to mind. For investors, understanding how climate change might affect their portfolios should therefore be of paramount importance.<\/p>\n

Sarasin\u2019s Climate Value at Risk<\/strong><\/h3>\n

This where Sarasin\u2019s Climate Value at Risk (CVaR) methodology comes in. Estimating value at risk (VaR) is a long-standing technique that investment managers use to examine and quantify potential threats to an investment thesis. Although it has the word \u2018risk\u2019 in its title, value at risk analysis can also help flag up promising opportunities. CVaR takes the concepts used in VaR and applies them to the complexities of climate change.<\/p>\n","protected":false},"excerpt":{"rendered":"

We get to know our companies comprehensively. When it comes to climate change, we use a proprietary, forward-looking approach to weighing individual companies\u2019 prospects as the world warms. Active investment managers spend a lot of time assessing the outlook for individual companies. But when it comes to estimating how climate change might improve or seriously...<\/p>\n","protected":false},"author":14,"featured_media":14882,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[142,9,27],"tags":[],"coauthors":[87],"class_list":["post-9511","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-house","category-stewardship-thoughts","category-thematic"],"yoast_head":"\nThe devil\u2019s in the detail: spotting climate winners and losers - Sarasin & Partners South Africa<\/title>\n<meta name=\"description\" content=\"We use a proprietary, forward-looking approach to weighing individual companies\u2019 prospects as the world warms. 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