Climate change is one of the most critical issues facing this generation, and it’s already drastically impacting the world’s inhabitants and ecosystems.1 COVID-19 introduced additional climate-related challenges and opportunities, with the pandemic impacting everything from human consumption patterns to government finances and the direction of future environmental policies.
The environment has become a primary concern in capital markets as well, with 90% of global C-suite executives believing climate change will have a negative impact on their companies.2 The economic impact of climate change varies considerably across asset classes and geographies, but it poses both near- and long-term material risks to investors. These considerable risks are why RBC Global Asset Management (RBC GAM) considers climate-related environmental, social and governance (ESG) issues throughout its investment processes.
Why climate change is a material investment issue
As an asset manager, RBC GAM has an important responsibility to consider all material factors that may impact the risk-adjusted returns of our portfolios and solutions. Integrating climate change, in addition to other ESG factors, into the investment process is an essential component of RBC GAM’s fiduciary duty to investors.
The 2017 recommendations from the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD)3 provide a framework for RBC GAM’s integration of climate-related risks and opportunities. One goal of the TCFD, which advocates for improved and streamlined data on climate change impacts in corporate reporting and financial disclosures, was to promote better alignment across existing disclosure regimes, frameworks and initiatives, including those focused on both financial and non-financial reporting.
Climate change and ESG investing in action
So how does RBC GAM consider climate change factors with respect to its investment processes? It begins with a firmwide understanding that climate change is one of the most pressing issues of our time. With this in mind, our 23 global investment teams, with the assistance of our Corporate Governance and Responsible Investment (CGRI) group, have developed a strategy for integrating climate change into our investment processes. This strategy is centred around three priorities: 1) fully integrating ESG into our investment process; 2) engaging in active stewardship; and 3) delivering client-driven solutions and reporting.
RBC GAM also analyzes and assesses climate-related data and continues to evaluate tools and approaches for integrating climate data and analytics into our investment processes. These approaches include:
- Enhancing carbon footprint analysis of our portfolios: Although we have been doing this for quite some time, we are enhancing our approach and exploring new methodologies as we consider how our portfolios contribute to climate change.
- Conducting climate scenario analysis: We are conducting climate scenario analysis of our portfolios to better understand the potential risks and opportunities portfolios may face under different forward-looking scenarios.
- Engaging with investee companies: Active engagement of portfolio companies is a critical element of RBC GAM’s approach to ESG investing. As part of this process, we are more actively encouraging companies to take actions that advance climate mitigation and adaptation, and report on our activities and progress.
Understanding the sensitivity of specific industries and sectors to climate change, the exposure of companies to physical risks and the risks from the transition toward sustainable practices, and the actions that companies are taking to manage and mitigate those risks are essential when investors address the potential impact of climate change on their portfolios.
Maia Becker, Director, Corporate Governance & Responsible Investment, RBC Global Asset Management
The next chapter on climate change
ESG, and climate change in particular, is an ever-evolving aspect of RBC GAM’s investment strategy, and we continue to search for ways to improve our ESG-driven processes. For example, measuring the carbon footprint of a portfolio only focuses on a single parameter (greenhouse gas emissions). RBC GAM and the industry as a whole are working on ways to assess climate change in a more comprehensive manner, by looking at the impact of extreme weather events, measuring technology innovation, and modeling how climate change will impact companies over time.
Ensuring that RBC GAM’s firmwide investment processes evolve and innovate is a core component of our commitment to our investors. With clients increasingly interested in responsible investing,4 integrating climate change factors into how we invest can benefit advisors and their clients, as well as the world as a whole.
Climate change is just one ESG factor RBC GAM focuses on. Watch out for future articles discussing cyber security/data privacy and employee management, two other ESG issues critical in today’s environment. For more information about RBC GAM’s integrated ESG investment process, visit https://www.rbcgam.com/ri.
1 The Intergovernmental Panel on Climate Change, “Special Report: Global Warming of 1.5 degrees Celsius,” www.ipcc.ch/sr15.
2 Deloitte Insights, The Fourth Industrial Revolution: At the intersection of readiness and responsibility, 2020.
3 Task Force on Climate-related Financial Disclosures, Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017).
4 Responsible Investment Association, 2019 RIA Investor Opinion Survey: Canadian Investor Perspectives on Plastic, October 2019.
This has been provided by RBC Global Asset Management Inc. (RBC GAM) and is for informational purposes, as of the date noted only. It is not intended to provide professional advice and such information should not be relied upon as such. Information obtained from third parties is believed to be reliable but RBC GAM and its affiliates assume no responsibility for any errors or omissions or for any loss or damage suffered. RBC GAM reserves the right at any time and without notice to change, amend or cease publication of the information. Some of the statements contained in this document may be considered forward-looking statements which provide current expectations or forecasts of future results or events. Forward-looking statements are not guarantees of future performance or events and involve risks and uncertainties. Do not place undue reliance on these statements because actual results or events may differ materially from those described in such forward-looking statements as a result of various factors. Before making any investment decisions, we encourage you to consider all relevant factors carefully.