Insights

Climate-Aware Investing Setting an Investment Policy and Strategy

October 31, 2024 2 min read

We believe attention to climate risks and opportunities is important to long-term value. In order to be prepared for the potential regulatory, economic and environmental impacts related to climate change, investors may consider reviewing their investment policy and strategy.

Using the Principles for Responsible Investment (PRI) framework¹ , we have listed some common questions for investors seeking to review their investment policy and strategy for the risks and opportunities related to climate change.

Context

Determine the relevant factors related to how your organization should approach climate aware-investing.

Questions to Ask	What are your organization’s:- views on climate investing? Are views aligned within the firm, or are there conflicting viewpoints? current knowledge level on climate change and key related issues like regulation, social and environmental trends?
	What stakeholders are your business responsible to? Is there a dual objective to contribute value outside the organization?
	What level of resources can/will the organization focus on to integrate climate themes into investment strategy? Are there clear lines of responsibility within the organization?
Why is this Important?	This can enable key internal stakeholders to be aligned on their sustainable investing vision and mission for the firm, to allow for efficient implementation of the final investment strategy.

Principles

Develop a specific set of investment principles/beliefs that will inform your asset allocation and align all investment decisions.

Questions to Ask	Will your climate principles be applicable to the entire portfolio or will there be different principles for specific groups of assets?
	Do you consider the impact on people and/or the planet? How is this translated into investment decisions?
	Are your firm’s principles/beliefs based on external principles, codes and/or regulations? e.g. Principles for Responsible Investment, UN Global Compact.
Why is this Important?	Identifying a clear, impactful set of investment principles can be the basis for all climate-related investment decisions.

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 have a regular reporting framework to 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.

Strategy

Identify an investment strategy that fits your objectives, investment principles/beliefs, and capabilities.

Questions to Ask	Does the firm have resources to manage the strategy inhouse or will it be outsourced to an investment manager?
	What are your investment objectives? Factors to consider include asset class/sector/benchmark selection, risk and return targets, and investment horizon.
	What investment vehicle do you prefer? Consider expected costs, mandate size and number of exclusions to be included.
	Are you looking for an active/indexed solution? Or a combination?
	What quantifiable benefits do you want to create for your beneficiaries other than financial returns e.g. carbon emission reduction, portfolio net zero alignment, engagement with key stakeholders on climate related issues.
	How does your organization use its voting rights? Is responsibility for climate related engagement/voting owned internally or externally?
	Determine key climate performance indicators that relevant internal stakeholders, external managers and proxy voting providers need to regularly report against.
Why is this Important?	Setting specific investment objectives and measures of success allows the evaluation of various scenarios to determine the final investment strategy.

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 Setting an Investment Policy and Strategy

Context

Principles

Objectives

Strategy

More on Sustainable Investing