Video: What is "climate-friendly" or "climate-focused" investing?

Let's talk about climate-friendly investing

Helen:

Hi, I'm Helen and I work in the Customer Experience team here at OneFamily. And today we're joined by Altaf Kassam from State Street Global Advisors. We're going to be talking about something which is very close to our customers' heart, which is climate-friendly investing.

So how does investing affect the environment?

Altaf:

Well, all companies have emissions both directly through their operations and indirectly through their supply chain. For example, they might burn fuel in a factory, which is a direct emission. Or they might buy electricity, which had emissions used to produce it, and that's an indirect emission.

But when you own a share of that company, you have a share of the ownership, but you also have a share of those emissions.

And what we try and do when we own a company is use our voice to try and encourage those companies to be more environmentally aware. And that is what we call engagement or active stewardship.

We also hope that over lots of investors investing in more environmentally aware companies, they can move the share price and signal to those companies that this more environmentally aware approach is the right way to be.

Helen:

Okay, so we're essentially rewarding companies who reduce their environmental impact by investing in them?

Altaf:

Spot on, it's one way that investors can contribute to tackling the climate emergency.

Helen:

So some of our products come with the option of investing in climate friendly funds, but what actually makes a fund climate friendly?

Altaf:

Well, there's no standard definition of what makes a fund climate friendly yet. But what we try and do at SSGA is use a number of factors to classify something as climate friendly.

So, we use scenarios from what's called the Intergovernmental Panel on Climate Change, which is the climate science part of the UN. And we use five [seven] factors to kind of screen or control investments to be climate friendly.

Firstly, we exclude what we think are the severe climate offenders. So oil sands, Arctic drilling, thermal coal. And then we try and invest less in companies which have high fossil fuel revenues and high fossil fuel reserves and invest more in companies with high green revenues and companies that appear to be trying to contribute positively to the climate transition.

So it's something that we have systems and fund managers who are expert in doing. We try and achieve all that while not taking on too much risk at the same time.

Helen:

OK, so are you more likely to lose money or not make as much money if you choose climate-friendly investing?

Altaf:

Well, I have to say, as with all investments, there's risk in climate friendly investing as well, which means that, you know, you might get back less than you put in.

And we have systems and fund managers who try and control that risk and make sure you don't go too far away from the broad market benchmark.

At the same time, there is an argument that if you invest in more environmentally aware companies, you're actually creating an investment which is more future proof.

Helen:

That's really reassuring. Thank you so much, Altaf. It's been really great to have you here. Thank you for answering all our questions.

Altaf:

Thank you.