Why investors are using climate science to reassess risk

The dangerous disconnect between scientists and investors is starting to close.

Alan and Phil
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Investors have embraced environmental, social and governance (ESG) investing. By the end of 2020, institutional and retail investors alike had already pumped some US$2.3 trillion into impact-tagged assets.

But broader climate considerations are affecting the investment industry in other, perhaps more transformational ways.

While 64% of investors sometimes or regularly use climate data to identify investment opportunities, a larger 79% say they use climate data to manage risk, according to stock index provider MSCI.

Relevant Sustainable Development Goals

One company at the vanguard of this approach is US-based Wellington Management, which oversees more than US$1.1 trillion in client assets.

In 2018 Wellington joined forces with Woodwell Climate Research Center, a leading independent climate research organization, in a bid to “integrate climate science into asset management”.

Climate change is already driving physical and demographic changes, creating systematic risk across across multiple industries and asset classes, Wellington says.

In this dialog, Wellington’s global industry analyst Alan Hsu and Woodwell president Philip Duffy discuss how climate trends will not only reveal investment opportunities but also contribute to mitigating some serious under-appreciated risks.

Alan T. Hsu

Alan Hsu is a global industry analyst on Wellington Management’s Global Industry Research Team. He conducts fundamental analysis and research on the utilities, energy midstream, and renewable energy/clean technology sectors, and is a member of the Utilities/Energy Team. He is also a portfolio manager of Wellington Management’s Global Environmental Opportunities approach. Alan joined Wellington Management in 2008, upon earning his MBA. Prior to that, he spent six years with the Tivoli software division of IBM, both in product management and business development (2000-06).

Dr. Philip B. Duffy Ph.D

Dr. Duffy is president and executive director of Woodwell Climate Research Center. Dr. Duffy is a physicist who has devoted nearly 30 years to using science to address the societal challenge of climate change. As a former senior advisor in the Obama White House, he has helped shape domestic and international climate policy, US global change research, and was involved in international climate negotiations. Dr. Duffy is particularly interested in working across traditional boundaries to address climate change, building partnerships with faith leaders, business leaders, and thought leaders across the political spectrum.

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Alan Hsu

Global Industry Analyst & Portfolio Manager, Wellington Management

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