Addressing climate-related risks and opportunities as a financial investor

Abstract

Climate change poses a financial risk to investors. Understanding when, where and how the effects of climate change will materialise is an important but complex exercise. Although the timing and magnitude of the consequences of climate change are uncertain, investors can address climate change risks and opportunities through their investment and ownership decisions. Norges Bank Investment Management (NBIM) initiated its climate ownership work in 2006 and published its first expectations on how companies should address climate change in 2009, making us an early mover among investors. We work to improve longterm returns and manage climate-related risks. The three pillars of our responsible investment strategy provide the foundation for this work: i) establishing principles; ii) exercising ownership; and iii) investing sustainably. This paper provides an asset manager’s perspective on how climate change risks and opportunities can be addressed in investment portfolios. First, we outline the financial risks stemming from climate change, regulatory responses addressing climate risks and emerging exposure assessment methods. Next, we provide an overview of strategies and tools used by institutional investors. Finally, we describe NBIM’s approach to and experience of using these tools.