investment viewpoints

    The shape and speed of the transition: how to align portfolios with net zero

    Asian credit: repositioning in EM debt

    The transition to net zero is one of the greatest challenges of our time. We believe that assessing the risks and opportunities associated with the transition requires a forward-looking measure of decarbonisation trajectories. 

    At Lombard Odier, we have developed several science-based tools to help distinguish climate leaders from climate laggards within individual sectors and industries. These tools enable us to assess companies’ specific transition trajectories and how aligned they are with the goals of the Paris Agreement. We can also quantify companies’ exposure to climate-related risks and opportunities, from a financial point of view. 

    Assessing risks and opportunities 

    Quantifying the risks and opportunities associated with climate change requires a forward-looking measure of a given company or portfolio’s decarbonisation trajectory. Implied Temperature Rise (ITR) metrics place a core focus on its pace of transition rather than the current scale of its emissions, enabling investors to focus on transitioning leaders. 

    Once the direction of a company’s emissions are established, it becomes possible to assess the potential financial impact that the transition to a net-zero economy could have on that company. Lombard Odier’s proprietary Climate Value Impact methodology allows us to determine whether companies are likely to be positively or negatively exposed to physical and liability risks as well as the political and economic effects of the transition.

    Newer technologies – such as geospatial assessment capabilities – are also integral to building and maintaining a forward-looking perspective. Spatial finance can used in order to develop a better understanding of risks, opportunities and impacts related to climate and the environment in a granular and actionable way.

    Exclusive analysis

    Lombard Odier’s recent Sustainable Finance Leadership Course, delivered in partnership with the University of Oxford, educated investors on the leading-edge, science-based tools we currently use to assess risks and rewards associated with the transition to net zero.
    In this report, which is based on sessions form the event, we detail:

    •    How investors can measure a given company or portfolio’s decarbonisation trajectory.
    •    How Lombard Odier distinguishes between companies positively, neutrally and adversely exposed to the climate transition.
    •    How the integration of geospatial data and analysis into financial theory and practice allows financial institutions to understand and manage risks, opportunities and impacts.

     

    To read the full report, please use the download button provided.

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