Managing Climate-Transition Risk in Credit Portfolios

Are there ways that managers can take an active approach to systematically managing exposure of a corporate-bond portfolio to climate-transition risk? We investigate doing this via different approaches to decarbonization of a portfolio, i.e., reducing the portfolio’s total greenhouse gas (GHG) footprint.

Given that companies in three sectors — energy, utilities and materials — contribute more than two-thirds of global emissions and these sectors score by far the highest carbon intensity, any approach which, in aggregate, underweights these sectors (and high-emitters in other sectors) can achieve a certain level of decarbonization. Whether it is adequate depends on sustainability and financial targets and the investment philosophy of the investors. We now examine different ways of decarbonizing corporate-bond portfolios.

You can now read the full whitepaper at the link below