On the one hand, there is trust — investors’ belief that their portfolio managers will generate maximum returns on their investments.
On the other hand, there is uncertainty — the great uncertainty — inherent in the roiling global society projecting climate change.
Enter new, refined investment risk management.
New investor research* just reported by The New York Times concludes that, “investors, it seems, continue to struggle with connecting their desire for a better planet with their need for investment returns — or even to understand how climate change could affect their portfolios.”
Portfolio advisers therefore have a new responsibility — and opportunity — to present nuanced risk management counsel to their clients. This counsel may well be based on the long term-short term generic bromide, “climate is what you expect; weather is what you get.”
Jason Baron of U.S. Trust: “Climate change as a weather phenomenon isn’t going to affect your portfolio in five to 10 years. But in the shorter term, there is policy and regulatory risk to climate change.”
Matthew Weatherly-White at the Caprock Group: “If you accept the premise, as we do, that some sort of carbon pricing and/or regulatory regime is going to emerge over the next decade, you have to incorporate that risk.”
Yet there may be a dollop of good news in this maelstrom. From Jason Baron: “The risk of underperformance is no more or less than with any other investment screen.”
* Survey by U.S. Trust with Indiana University’s Lilly Family School of Philanthropy