Climate change investment risk: Update on the “Smart Carbon” methodology, September 2017

In 2015, Impax developed a new approach to managing climate change investment risk within equity portfolios, exploring the potential impairment to future cash flows of companies whose valuations are linked to fossil fuel assets (i.e. extractors of coal, oil, and gas).

We have been running three model portfolios based on modifications to the MSCI World Index, which reduce Exploration and Production ("E&P") exposure to varying degrees, and in order to preserve energy price (factor) exposure, replace it with Energy Efficiency stocks. The models have been rebalanced quarterly over the past two years in response to MSCI index weightings and updates to our proprietary fossil fuel risk analysis.