New Guidance on Integrating Climate Change in Investment Process

CFA Institute says 75% of global C-level executives in the investment industry believe climate change is important, but only 40% incorporate it in their investment process.

CFA Institute has released a report on climate change analysis, a resource to help guide investors towards including climate change analysis in the investment process.

The report includes an examination of the issue of climate change, discusses the physical and transition risks brought about by climate change, explores carbon markets, and presents current resources and best analysis practices available to investors concerning climate change.

In survey findings revealed in the report, CFA Institute says 75 percent of global C-level executives in the investment industry believe that climate change is an important issue, though only about 40 percent incorporate climate change information into their investment process.

The report also contains 10 case studies from global investment management firms demonstrating how they fit climate change into the investment process. The case studies cover investment themes such as carbon markets, quantitative analysis, engagement around climate issues, and forestry as an asset, among others.

“The role of finance is to allocate capital efficiently in society. That process is increasingly taking the impact of climate change into account,” said CFA President and CEO Margaret Franklin.

“Financial professionals need to be equipped with the best tools and training around climate change analysis in order to make investment decisions that take climate change into consideration. This report will be a resource to investors and financial professionals in that process.”

The report includes recommendations for measures to better integrate climate change analysis, calling on policymakers to develop regulatory frameworks for carbon markets that are transparent, liquid, and accessible to global market participants, in order to underpin robust and reliable carbon pricing.

CFA Institute recommends that investment professionals account for carbon prices and their expectations thereof in climate risk analysis.

The report also calls for increased transparency and disclosure on climate metrics, and better engagement with issuers to ensure climate data, scenario analysis, and related disclosures are sufficiently thorough to support robust climate risk analysis in the investment process.

“Investors need to continue to educate themselves about climate change in order to provide clients with the climate-related analysis they deserve,” the report said, adding that continued engagement with policymakers is necessary to ensure they have the tools they need to efficiently allocate capital to help tackle the “existential threat of climate change”.

The full report is available here.

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