BlackRock Investment Institute Videos

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We’ve been saying for a few years that climate risk is investment risk.

And by that we mean is companies, sectors will be affected by climate change and as a result, there will be winners and losers in the transition and that’s what we need to capture in portfolios.

A few forecasters have started introducing some aspect of climate change but very few if any incorporate all the aspects and channels by which we think climate change is affecting our return expectations across asset classes.

The first channel is the macro backdrop. The growth that we expect to see over the next 5, 10, 20 years. Growth will be different; inflation will be different in a green transition.

The second is the fact that we are seeing a premium being reflected now for companies or sectors that are better aligned with the transition. That can be measured by the carbon intensity of the sectors and companies as a proxy for how these companies are likely to fare going forward.

We see technology and healthcare as being among the beneficiaries given that producing the healthcare services or the technology requires a less carbon intensive production process. That would be different than it is for energy, utilities and materials.

And the third channel is profitability of companies and earnings, that expectations will be different in a world where you see a climate transition versus a business as usual

The bottom line is the climate transition is a historic investment opportunity. We see climate change and the transition driving capital reallocation and returns across asset classes over the many years to come and that goes at the heart of how we build portfolios.

We’ve been saying for a few years that climate risk is investment risk.

And by that we mean is companies, sectors will be affected by climate change and as a result, there will be winners and losers in the transition and that’s what we need to capture in portfolios.

A few forecasters have started introducing some aspect of climate change but very few if any incorporate all the aspects and channels by which we think climate change is affecting our return expectations across asset classes.

The first channel is the macro backdrop. The growth that we expect to see over the next 5, 10, 20 years. Growth will be different; inflation will be different in a green transition.

The second is the fact that we are seeing a premium being reflected now for companies or sectors that are better aligned with the transition. That can be measured by the carbon intensity of the sectors and companies as a proxy for how these companies are likely to fare going forward.

We see technology and healthcare as being among the beneficiaries given that producing the healthcare services or the technology requires a less carbon intensive production process. That would be different than it is for energy, utilities and materials.

And the third channel is profitability of companies and earnings, that expectations will be different in a world where you see a climate transition versus a business as usual

The bottom line is the climate transition is a historic investment opportunity. We see climate change and the transition driving capital reallocation and returns across asset classes over the many years to come and that goes at the heart of how we build portfolios.