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Climate metrics: a primer for investors

Oct 9, 2022

Climate metrics are becoming a vital component of successful investment decisions with the rise of climate investing, an increasing recognition of environmental risks, and investors across the world beginning their journey to Net Zero. This primer from State Street Global Advisors provides an overview of the key metrics, what they mean, and how they are employed.

Understanding environmental risk

Environment-related risks can largely be divided into physical risks and transition risks from climate change.

Physical risks: Tangible risks of climate change that could manifest through a rise in sea levels, water stress, droughts, flooding, extreme temperatures and increased frequency of extreme weather events, inter alia.

These phenomena could damage infrastructure, cause supply-chain disruption, result in raw materials scarcity, or harm human health, and more. In addition, climate models also predict that the impacts above are distributed unevenly and will affect certain regions or peoples disproportionately.

Transition risks: Risks to economic and business models that are associated with new carbon pricing or emissions trading schemes, as well as the risk that higher costs of carbon may lead to stranded assets. Transition risks include changing consumer habits and labour market shifts, as well as investment allocation decisions in companies and sectors better suited to a low-carbon economy.

Risk interaction and impact

These two risks frequently interact, and companies can often be affected by either to varying degrees, depending on their business models, geographic locations, pricing power, etc.

To inform our analysis of environmental risks in portfolios, we employ a number of datasets from data vendors. Below, we provide an overview of the data that underlies today’s climate-related investing landscape.

Read the full report to explore key climate metrics

Disclaimer:

For investment professional use only.

Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103-0288. F: +852 2103-0200

Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore). T: +65 6826-7500. F: +65 6826-7501

Investing involves risk including the risk of loss of principal.

The views expressed in this material are the views of the ESG EMEA team through the period ended February 2022 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed.

The returns on a portfolio of securities which exclude companies that do not meet the portfolio's specified ESG criteria may trail the returns on a portfolio of securities which include such companies. A portfolio's ESG criteria may result in the portfolio investing in industry sectors or securities which underperform the market as a whole.

There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA's express written consent.

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Exp. Date: 28 February 2023