The Aviva Investors Climate Transition Global Equity strategy aims to drive progress towards a more sustainable future and deliver enhanced returns for investors.
Climate change represents arguably the world’s greatest long-term challenge. To meet the Paris Agreement target of restricting global warming to well below two degrees Celsius above pre-industrial levels, and ideally 1.5 degrees, we need to see a 50 per cent reduction in emissions every decade from 2020 to 2050; this equates to a decline of more than seven per cent per year.
Achieving this will require a significant increase in spending on products and services that can help society decarbonise and adapt to a warmer climate. Estimates of the capital required vary from $3.5 trillion to $9.2 trillion a year. The scale and pace of change needed for the transition to a low-carbon and climate-resilient economy will impact every company and every sector throughout their value chains, bringing significant investment risks and opportunities.
Companies are already experiencing the economic and physical effects of climate change. We expect the financial impacts will accelerate further, driven by regulation, technical progress and growing investor and consumer activism. We believe these forces will lead to greater dispersion in performance between transition leaders, those working proactively to ensure they are on the right side of these trends, and the laggards, whose business models could come under threat due to their failure to respond.
To effectively support and ultimately profit from the transition to a lower-carbon economy, investors will need to look beyond simple rules-based exclusions and instead focus on hard-to-abate but economically vital sectors as they seek to reduce their emissions, alongside companies whose products and services can help societies mitigate climate change and adapt to its effects.
Equity investors will have to carefully assess how the climate transition is transforming business models across sectors
Many companies claim they stand to benefit from the climate transition. While this may be true in some cases, firms in traditionally “green” industries will also face stern headwinds in an increasingly competitive and complex business environment. Not all solar-power generation companies or electric-vehicle (EV) manufacturers will succeed, even if these sectors are projected to see demand growth in the aggregate. To find attractive returns, investors will have to look beyond the obvious beneficiaries and carefully assess how the climate transition is transforming business models across sectors.
The Aviva Investors Climate Transition Global Equity strategy adopts an active, fundamentally focused investment approach to identify companies that can translate their best-in-class climate credentials into stronger growth and profitability. In doing so, the strategy also aims to drive progress towards a more sustainable future and deliver enhanced returns for investors.
Download No sector left behind to understand:
- How the accelerating climate transition will transform the investment landscape.
- The structural changes the transition will bring across all industries, and the resulting risks and opportunities for equity investors.
- The importance of looking beyond “green” sectors such as renewable energy to include companies leading the transition effort, along with those developing climate solutions.