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Could your investment portfolio be at risk of climate-related threats? 

23/10/2021

What does climate change really mean for investors? 

For the first time ever, analysis has been conducted to establish just how exposed to climate risks institutional investors in the UK really are. Conducted by consultancy LCP, this new research forms the basis of their latest report: The tip of the iceberg

Read on for our key takeaways from this report – and if you want to take a look at the research in detail, you’ll find the full report here.

 

Half of institutional investors face major climate risks

LCP’s research is based on over 300 institutional asset owners in the UK. 50% of these investors – who hold £280bn of assets in total – have portfolios that include “significant” climate risks, with just 10% having a low-risk portfolio. 

The report suggests that, with changes to their corporate bond and equity holdings, 90% of institutional investors could reduce their climate risk exposure over the next ten years. 

 

Significant risk in corporate bonds? 

82% of institutional investors in the UK have more of their assets in corporate bonds and gilts than in equities: a figure which equates, on average, to 54% of their investment value. 

LCP has warned that climate risk may be underpriced and under the radar in the corporate bonds market – and with the popularity of corporate bonds growing, this could, they warn, be the biggest area of climate risk for such investors. 

 

A focus on Net Zero asset classes

The research report reveals that those surveyed hold, on average, 75% of their portfolios in asset classes that have clear pathways signposted to reach Net Zero by 2050. These asset classes include government bonds, investment-grade corporate bonds and listed equities: all of which either have existing Net Zero pledges and plans, or will do very soon. 

However, two-thirds of institutional investors in the UK have over a tenth of their assets held in asset classes where more needs to be done to address transparency. LCP recommend that investors dissect their portfolios into different levels of climate risk, making it easier to tackle climate risk management going forwards. 

To read LCP’s report in full, click here.

 

“Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.”

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