2 June 2023 15 minute read

The Aviva Investors Climate Transition Global Equity strategy aims to drive progress towards a more sustainable future and deliver enhanced returns for investors.

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No sector left behind

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.

Key risks

Counterparty risk

The strategy could lose money if an entity with which it does business becomes unwilling or is unable to meet its obligations to the strategy.

Currency risk

The strategy is exposed to different currencies. Derivatives are used to minimise, but may not always eliminate, the impact of movements in currency exchange rates.

Derivatives risk

Investments can be made in derivatives, which can be complex and highly volatile. Derivatives may not perform as expected, meaning significant losses may be incurred.

Derivatives are instruments that can be complex and highly volatile, have some degree of unpredictability (especially in unusual market conditions), and can create losses significantly greater than the cost of the derivative itself.

Emerging markets risk

Investments can be made in emerging markets. These markets may be volatile and carry higher risk than developed markets.

Illiquid securities risk

Some investments could be hard to value or to sell at a desired time, or at a price considered to be fair (especially in large quantities), and as a result their prices can be volatile.

Investment risk

The value and income from the strategy’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the strategy will achieve its objective and you may get back less than you originally invested.

Sustainability risk

The level of sustainability risk to which the strategy is exposed, and therefore the value of its investments, may fluctuate depending on the investment opportunities identified by the Investment Manager.

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Important information

THIS IS A MARKETING COMMUNICATION

Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL). Unless stated otherwise any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable, but has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. Some data shown are hypothetical or projected and may not come to pass as stated due to changes in market conditions and are not guarantees of future outcomes. This material is not a recommendation to sell or purchase any investment.

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