Climate change and its risks are going mainstream. We explain what the raft of new regulations to cut carbon emissions means for investing.

Climate change and its risks are expanding their footprint. What does the raft of new regulations to curb carbon emissions mean for investing? How do you reduce climate risk in portfolios? We debated this with colleagues, clients and industry representatives during a one-day video conference in September. This new BII publication summarizes the key conclusions.

Countries with pledges to reduce emissions after 2020


Climate change risk has arrived as an investment issue. Governments are setting targets to curb greenhouse gas emissions. The resulting regulatory risks have become key drivers of investment returns across industries.
Do securities of companies most susceptible to physical and regulatory climate risks already trade at a discount to the market? We have not observed such a discount in the past – but could see one in the future.
Global insurers have led the way in pricing of natural disaster risks. Hurricane Andrew in 1992 almost wiped out the industry, leading to a revolution in the way it prices risks. Other sectors need to catch up.
We discuss ways for asset owners to promote sustainability, including a focus on environmental, social and governance (ESG) factors. We view ESG excellence as a mark of operational and management quality.
Divesting from climate-unfriendly businesses is one option. The biggest polluting companies, however, have the greatest capacity for improvement. Engagement with corporate management teams can help effect positive change.
The focus on sustainability has unleashed a torrent of new data. These can be used to measure physical and regulatory environmental risks, to mine for alpha opportunities or to reflect social values into portfolios.
We analyze the carbon intensity of an insurer’s corporate debt portfolio and discuss research that ties improving carbon efficiency to equity outperformance.
Efforts to mitigate climate change will produce winners and losers—but not always the obvious ones. The oil industry and energy-exporting countries may look like losers, yet low-cost operators should do fine as de-carbonization will likely be gradual.
We like renewable infrastructure debt and equity, but recognize the risk of bubbles in this high-growth sector as too much capital chases limited opportunities.
BII Authors

Top row: Ashley Schulten, Deborah Winshel, Kurt Reiman
Bottom row: Ewen Cameron Watt, Michelle Edkins, Poppy Allonby

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Nearing Normal

2015 BII Outlook

BlackRock Investment Institute: 2015 Outlook

The U.S. Federal Reserve is (reluctantly) ending a long period of abnormally low rates. We sketch out the implications for markets and update our 2015 outlook.

This is part of a series prepared by the BlackRock Investment Institute and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of October 2015 and may change as subsequent conditions vary. The information and opinions contained in this paper are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents.


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