Global warming and the Net Zero transition have far-reaching implications for investors. In particular, embracing a Net Zero path will impact investors’ asset allocation in two ways.
- Strategic asset allocation decisions will need to consider how the transition will impact economic and financial variables and thereby, the returns investors can expect in the future across asset classes1. Our findings suggest that the transition will lower the expected returns of risky asset classes (e.g., equity, high yield credit). Corporate cost structures will be negatively impacted, leading to lower earnings growth. Yet, we also recognise that responsible investors will favour sectors and companies which lead the innovation required to make the transition happen.
- Investors can embrace the Net Zero path within their equity and corporate bond allocations to ensure their portfolios are Net Zero aligned. In doing so, investors will have to reassess traditional asset allocation approaches, so as to reflect the fundamental shifts in the world’s economy caused by climate change. A bottom-up approach to asset allocation has been gaining traction, as the urgency among investors and regulators to address climate change gathers pace.
You can now read the full whitepaper at the link below