A new climate risk model

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Summary

Insight has a long-standing commitment to responsible investment and has explicitly taken ESG issues into account in its fixed income research process for well over a decade. Climate change-related risks – litigation, physical risks, taxation and regulation – have been a key area of our focus over this time. We have developed a new climate risk model to help investors better understand the risks and opportunities that climate change introduces to their portfolios.

While our clients have been interested in our approach, there has been a dramatic upswing in their focus on climate change in the last two or three years. The reasons are obvious: the ratification of the Paris Agreement has signalled a step change in policy action and the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD) has explicitly called on asset owners to report on how they are managing climate change-related risks and opportunities.

Our clients now ask us detailed and in-depth questions about the issuers we hold, how these issuers manage climate-related risks and opportunities, and the actions we are taking to manage climate-related risks in our portfolios.

With this level of attention, we concluded that we needed to put our analysis of issuers on a much more systematic and structured footing, allowing us to present a full cross-portfolio analysis and make meaningful assessments of how we are managing climate-related risks and opportunities.


Insight's Climate Risk Model: Summary

Our climate risk model is what we believe to be the investment industry’s first comprehensive ranking of how fixed income corporate credit issuers manage their climate change-related risks and opportunities, and how are they are positioning themselves for the transition to a low-carbon economy. The model is designed to be used by institutional investors looking to assess risks and opportunities in their investment portfolios related to climate change.

  • It provides a wide-ranging assessment of how nearly 1,900 corporate fixed income issuers – investment grade and high yield – are managing the risks and opportunities presented by climate change
  • It aims to help manage risk, accounting for the risk characteristics of specific sectors and for the carbon impact of individual issuers. It aims to help investors identify the issuers most at risk from a transition to a low-carbon world. It also allows investors to identify issuers that are managing these risks effectively and those that are not
  • It helps users monitor risks in line with TCFD guidelines. The model’s framework and methodology are aligned with the requirements of the TCFD, with companies assessed against objectively assessable indicators across the four TCFD themes: governance, strategy, risk management, and metrics and targets
  • It is based on independent data sourced from the Carbon Disclosure Project (CDP), MSCI and Bloomberg.