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Climate-Aware Investing Selecting an External Investment Manager

31 October 2024 2 min read

We believe attention to climate risks and opportunities is important to long-term value. However, investors seeking climate solutions can face a number of challenges when selecting an external investment manager. These may include lack of understanding of climate data to evaluate/measure, broad manager approaches to portfolio construction, limited product selection, and concerns around adequate disclosure.

Using the Principles for Responsible Investment (PRI) framework¹, we have listed some common questions for investors who are selecting an external investment manager.

Objectives

Define what climate-aware investing means to your organization and set objectives around its beliefs, goals, preferences, and resources.

Questions to Ask	Do you view climate change as a material investment risk and/or opportunity within your portfolio?
	Are there any sectors, industries, or geographies that your organization wants to entirely avoid?
	Which climate factors do you want to integrate into your portfolio? (e.g. greenhouse gas emissions, fossil fuel reserves, brown revenues, green revenues, implied temperature rise, climate value-at-risk, carbon risk rating). Should you consider both backward and forward-looking indicators?
	Is positive real-world impact an explicit part of your primary objective for investment results?
	Do you expect policy makers to further introduce regulations requiring the investment management industry to consider climate-related factors?
	What are your objectives on transparency and reporting of climate goals? Does your firm provide a regular reporting framework to your beneficiaries?
Why is this Important?	The breadth of the objectives can play a vital role in determining the final strategy whether it be an exclusionary approach, integration or impact investing.

Culture

Gain an understanding of each managers’ overall sustainable investing culture.

Questions to Ask	Does the manager believe that climate factors impact the potential risk and returns of a portfolio?
	How does the manager incorporate climate considerations and values: within investment funds? Does the approach differ across asset classes? across the organization outside of the investment process?
	Are portfolio manager incentives aligned with sustainable investing objectives?
Why is this Important?	Investment managers with a clearly defined culture may be more likely to integrate and maintain sustainability focused and climate-aware practices across the organization.

Approach

Assess the manager’s investing approach and its alignment with your climate objectives.

Questions to Ask	Do you have a firm-wide policy that articulates your climate philosophy and approach? If the policy is not firm-wide, which parts of the organization does it cover? How frequently do you review?
	Do you require each investment team to incorporate broad sustainability and climate specific factors into their investment process?
	Describe how governance processes for sustainable investing principles are integrated into investment funds, and the broader business.
	Do your investment teams leverage proprietary or external sustainability data? Describe the methodology.
Why is this Important?	A comprehensive understanding of a manager’s investment approach is important for informed decision making on alignment with your own objectives.

Capabilities

Ensure the managers overall sustainable investing capabilities satisfy the needs of your organization.

Questions to Ask	How extensive is the firm’s climate-aware product offering?
	How does the manager develop an exclusion list? Do they have a proprietary list, or rely on external providers?
	How is climate data/insights merged with traditional financial data to make investment decisions? What sustainability data, research, and tools are used?
	Are climate metrics included in the standard reporting package? How is this communicated and what is the frequency?
	Evaluate how the investment manager engages with stewardship & active ownership issues.
Why is this Important?	The degree of proficiency across broad sustainability/climate specific investing and product offerings, can be critical to selecting a manager that meets your firms requirements.

Footnotes

Disclosure

For investment professional use only.

Australia: State Street Global Advisors, Australia, Limited (AFSL Number 238276, ABN 42 003 914 225) (“SSGA Australia”). Registered office: Level 14, 420 George Street, Sydney, NSW 2000, Australia · Telephone: +612 9240-7600

Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103-0288. F: +852 2103-0200

Japan: State Street Global Advisors (Japan) Co., Ltd., Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380. Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan Investment Advisers Association, The Investment Trust Association, Japan, Japan Securities Dealers’ Association.

Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore). T: +65 6826-7500. F: +65 6826-7501.

Investing involves risk including the risk of loss of principal. The returns on a portfolio of securities which exclude companies that do not meet the portfolio's sustainable strategy criteria may trail the returns on a portfolio of securities which include such companies. A portfolio's sustainable strategy criteria may result in the portfolio investing in industry sectors or securities which underperform the market as a whole.

This document may contain certain statements deemed to be forward-looking statements. All statements, other than historical facts, contained within this document that address activities, events or developments that State Street Global Advisors expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions and analyses made by State Street Global Advisors in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances, many of which are detailed herein. Such statements are subject to a number of assumptions, risks, uncertainties, many of which are beyond State Street Global Advisors’ control. Please note that any such statements are not guarantees of any future performance and that actual results or developments may differ materially from those projected in the forward-looking statements.

The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.

All information is from State Street Global Advisors unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent .

Climate-Aware Investing Selecting an External Investment Manager

Objectives

Culture

Approach

Capabilities

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