Asset Management

Climate change poses both a significant risk and an opportunity for investors. Investing in climate solutions is not only the right thing to do, it is also a smart, long-term strategy for value creation. Even BlackRock, the world’s largest asset manager, has shown that investors don’t experience any negative performance when divesting from fossil fuels. Moreover, oil and gas investments have shown to be less stable and “var[y] greatly over time compared with more consistent returns for clean energy projects.” 

On the other hand, not investing in climate action comes with a huge cost since climate change could decrease global GDP by up to 18% by 2050. Investing in companies contributing to the climate crisis poses significant risks to the long-term performance of your portfolio. 

Thankfully, climate solutions represent trillions of dollars in opportunities, from decarbonizing products and processes to replacing high-emissions products with low-emissions ones and developing new technologies to help reach net zero and beyond.

Addressing both physical and transition-related climate risks is essential for fulfilling your fiduciary duty. Climate change impacts threaten long-term financial health, and industries are already taking serious action to mitigate potential losses, including major insurers pulling coverage from the entire state of California due to wildfire risk. By the 2050s, the physical risks associated with climate change could cost companies in the S&P Global 1200 on average 3.3% – and up to 28% – per year of the value of their real assets. The communication services, finance, consumer goods, and healthcare sectors will be especially affected. For almost all sectors, the cost of managing risk is far cheaper than the cost of inaction. This is especially true for the financial services sector. Financial services companies within the G500 reported an estimated US$677 billion in financial risk but a cost of only US$2.2 billion to manage that risk. 

Use a climate-risk lens for research and evaluation

• Between 2000 and 2019, an estimated US$2.8 trillion in damages were caused by climate-related natural disasters. When researching, consider how climate change will impact a company’s or industry’s business model. Are their supply chains exposed to rising sea levels, heat waves, increased flooding, drought, crop failures, or other climate risks? 
• If interacting with company research prospects directly, request information on their climate disclosures, governance, commitments, and course of action. 
  • Use Project Drawdown’s Drawdown-Aligned Business Framework to assess whether or not they are using the full suite of their power to help scale solutions. Some key indicators of adequate climate ambition include interim targets, internal carbon pricing, inclusion of Scope 3 emissions, and a focus on climate justice. 

Engage your portfolio companies

• Collaborate with leadership to create a climate engagement strategy with portfolio companies. More active management of portfolio companies can lead to better returns over time.
  • Impose penalties if portfolio companies do not meet your firm’s climate requirements, including a “time-bound escalation framework.” 
• Require clear and publicly available greenhouse gas emissions data and financial risk disclosure. Get familiar with recommendations set by the International Sustainability Standards Board (ISSB), Sustainability Accounting Standards Board (SASB), Global Reporting Initiative (GRI), the European Union’s Corporate Sustainability Reporting Directive (CSRD), and other climate risk reporting standards. (While you’re at it, encourage your leadership to use these standards for your own firm!)
• Encourage your firm to support shareholder resolutions that require companies to address climate risk. 
  • Climate-related shareholder resolutions are on the rise, with a record-setting 263 climate-related resolutions filed in 2024 as of March. Voting is a key way asset management firms can show their support for climate action. Check out Climate Action 100+, which flags key proposals every proxy season for investors to consider. 

Engage your clients

• If you regularly communicate with clients, talk to them about the importance of minimizing climate risk. Listen to their concerns and point them toward solutions-oriented resources like the ones in this guide!

Engage your firm

• Determine whether your firm is conducting portfolio climate risk assessments via carbon accounting and scenario analyses. If not, who might you be able to talk to about starting that process?
• Engage leadership to set clear policies and expectations for high-emitting sectors, including: 
  • Investment restrictions for companies expanding oil and gas projects. (To reach net zero by no later than 2050, all unabated coal and oil power plants must be phased out.) 
  • Create carve-out allocations (and eventually totally exclude) companies in high-emitting sectors and increase the percentage of companies focused on scaling climate solutions. Engage with companies in high-emitting industries to ensure they are taking adequate and real measures to transition their business model toward climate solutions. 

Investing with a climate lens is a smart investment practice: It is crucial to long-term value creation and consistent with fiduciary duty. A meta-analysis of over 1,000 studies between 2015 and 2020 found that the majority reported a positive relationship between responsible investing and financial performance. The climate solutions supply chain is only expected to grow, valuing US$5–11 trillion by 2030, representing a colossal opportunity for investors, driven by new revenue from growing consumer demand and shifting preferences. Climate solutions not only drive returns, but they are also cost-effective: About 80% of the solutions studied by Project Drawdown are actually cheaper than the technologies and processes we are currently using.

Use a climate-opportunity lens for research and evaluation

• Start your research with Drawdown Solutions to learn which mitigation solutions are currently available, growing in scale, financially viable, and have a net positive impact and sound scientific support. Look for these solutions in your pipeline of portfolio companies. You can go even deeper with the Drawdown Roadmap video series, which will help you prioritize solutions. Explore sound investment opportunities that are aligned with the following criteria:
  1. Act as emergency brakes – solutions that have an immediate impact because they prevent CO₂ release or affect a fast-acting warming agent like methane or black carbon. Emergency brake solutions include methane leak management, forest protection, clean cooking, and improved rice production.
  2. Currently available rather than those that count on new technologies or solutions that delay mitigation – like industrial carbon capture schemes peddled by the oil industry. 
  3. Focused on geographic hot spots. (Check out ClimateTRACE’s emissions map, which shows emissions sources from different sectors across the globe.)
  4. Beneficial to human well-being, for example, those that improve health, education, economic stability, and access to housing and healthy food. Read Project Drawdown’s Climate-Poverty Connections Report to learn more about climate solutions that directly and indirectly improve human well-being.
• Identify which industries will be most affected by a decarbonizing economy and consider what new technologies might need to be developed to support them in the transition. 
• Look for companies that think and operate in the long term. Companies that manage for long-term value creation not only tend to be more sustainable, but they also outperform their peers on earnings, revenue, and market capitalization.
• Approach your research with a climate justice lens, ensuring the companies your fund invests in are accounting for the impacts of climate on communities hit hardest: Black, Indigenous, and people of color (BIPOC), low-income, and other historically marginalized groups.
  • Consider that the world’s poorest countries are least responsible for climate change but often the most impacted by its consequences. Consider investing in local adaptation solutions to build upon national and international climate financing efforts.
  • Think beyond just greenhouse emissions and consider other externalities like water and air pollution (the latter of which costs the world US$2.9 trillion per year due to millions of premature deaths, health issues, and work absences), as well as biodiversity loss. 

Engage your clients

• If you regularly communicate with clients, talk to them about the opportunities in investing with a climate lens. If your clients are already onboard, engage with them to better understand their priorities to formulate an even stronger climate investment strategy.

Develop and publish a climate action plan

• If they are not already, ensure your firm is working toward developing (and making publicly available) its own plan to address climate change. For a comprehensive climate framework that your firm can consider, check out The Investor Agenda’s Investor Climate Action Plans (ICAPs), which outline five key areas investors can engage in that are consistent with fiduciary duty.

Join investor support groups

• Joining an investor group focused on climate action is a great way to learn best practices and share learnings with other like-minded firms. If your firm is looking to level up its climate work, encourage leadership to consider joining such a group. (See a list of investor groups below under Resources.)

Increase policy advocacy efforts

• Sign investor statements calling on governments and companies to take more ambitious climate action.
• Encourage leadership to develop sustainable finance policy positions and advocate for them by engaging with relevant governmental and regulatory decision-makers. For inspiration, check out the Investor Group on Climate Change (IGCC)’s policy advocacy work in Australia.
• Check to see if any industry associations your firm is a part of are actively obstructing climate policy.
• If you work for one of the 70 largest asset managers, read about your company’s climate stewardship (or lack thereof), including portfolio alignment with the Paris Agreement and policy engagement. 

• Reach out to experts and join coalitions to learn the most effective strategies from peers and others leading on climate action, such as ShareAction’s Investor Decarbonisation Initiative and Ceres Investor Network.
• Connect with other climate-concerned colleagues across job functions to build firm-wide momentum and interest in climate.
  • For example, if you manage a team, work with human resources to ensure all job descriptions – not just sustainability-focused roles – include criteria around climate risk expertise or interest.

• Reduce carbon-intensive business travel for you and your team by opting for virtual meetings. If you can, avoid flying and instead take a train or use another mode of transportation that emits fewer emissions.
  • When meeting with clients or portfolio companies, try to get as much information as possible virtually.