We identify, assess and manage climate-related risks; and invest in opportunities that can arise from the low carbon transition. 

Climate change can create financial risks for companies and investors through two main drivers:

The impact of climate change is not only structural and long-term, but depends critically on how the future pathway unfolds.  There are two uncertainties here: which future pathway the world sets itself on, and how that pathway affects financial assets. Building a climate-resilient investment portfolio requires a forward-looking approach that needs to be calibrated over multiple time horizons. 

Source: IHCC and NGFS

Drawing from the findings of the climate scenario analysis, we developed a set of targeted portfolio actions, starting with transition risk in the equities portfolio. Collectively, these actions seek to enhance the climate resilience of the portfolio. We estimate that the portfolio actions that we implement over time will contribute to reducing the WACI of our equities portfolio by up to 50% by FY2030. 

These actions include: 

• Defining stewardship principles for our external managers to engage portfolio companies on climate-risk issues and to support their transition. 
• Piloting two climate benchmarks to tilt equities investments towards companies that are better prepared for the transition to a low carbon future.
• Developing investment strategies that are focused on sustainability and climate change themes.
• Excluding investments in companies that are most vulnerable in a low-carbon transition, which for now we have scoped to those that derive more than 10% of their revenues from thermal coal mining and oil sands activities. 
   

Our portfolio actions therefore seek to manage transition risks and benefit from low-carbon opportunities in different ways, given the current nascent developments around corporate disclosures, taxonomies, standards, methodologies and regulations. 

Employing a wider range of portfolio actions will enable IHCC to influence real world emissions reduction of companies in the portfolio through our fund managers, invest more actively in transition opportunities and climate solutions, maintain flexibility to effectively reduce portfolio emissions and transition risk exposures when needed and, as a last resort, avoid assets vulnerable to becoming stranded in a swift, low-carbon transition.   

The actions we take will grow and evolve over time with better data and techniques and as the imminence and clarity about physical and transition risks increase. 

We measure the Weighted Average Carbon Intensity (Scope 1 and 2 emissions) of the equities and corporate bonds portfolios to gauge the level of transition risks and monitor the effectiveness of the portfolio actions that have been implemented. 

Chart: Equities Portfolio WACIFor the equities portfolio, emissions of 85% of the companies (by market value) are based on reported data. The emissions of 7% of the companies are estimated by MSCI, applying emissions factors on the physical activity data reported by the companies, while a further 7% are estimated by applying sector-specific emissions factors on the companies’ revenue. The remaining 1% of the portfolio with no emissions data are not included in the climate-related metrics featured here. (in tonnes CO2e/ USD million of revenues)

Chart: Corporate Bonds Portfolio WACI For the corporate bonds portfolio, emissions of 71% of the companies (by market value) are based on reported data. The emissions of 9% of the companies are estimated by MSCI, applying emissions factors on the physical activity data reported by the companies, while a further 12% are estimated by applying sector-specific emissions factors on the companies’ revenue. Emissions data for 8% of the portfolio are not available, as these are mainly debt securities issued by companies which fall outside MSCI’s coverage universe.As the corporate bonds portfolio comprises mainly developed market issuers, IHCC reports WACI of the portfolio against the WACI of a broad investment grade corporate bond benchmark. (in tonnes CO2e/USD million of revenues)

We continue to monitor the development and explore the use of forward-looking metrics that can be incorporated into portfolio analysis and actions.