Schroder: Carbon reduction strategies need to consider a broader perspective. Stock investors need to consider carbon footprint.

As the world accelerates towards net zero emissions, Schroders' Global Head of Global Equities, Simon Webber, and Diversified Asset Investment Strategist, Ben Popatlal, discuss how investors can flexibly adjust their investment strategies to achieve decarbonization goals in their portfolios. Many investors have clear personal goals or ethical values and want to integrate them into their investment strategies. In driving towards net zero emissions, there are opportunities in the market to create alpha by effectively avoiding potential risks through investments in industries with lower risk or stranded assets. The key is that investors expect specific sustainable results, rather than just staying at the concept of sustainability. In the investment field, sustainability is often about comparing different investments as benchmarks. Sustainable results, however, focus more on specific goals to measure the actual performance of funds and portfolios. For example, setting specific targets such as achieving carbon neutrality by 2030 or net zero emissions by 2040. This makes the goals measurable and objectively clear, which is especially important for investors looking to decarbonize their investment portfolios, as it provides clear standards and progress goals. Decarbonization strategies need to consider a broader perspective, and governments can provide clear direction For many investors, decarbonization often means reducing carbon emissions within a specific timeframe. However, achieving decarbonization in investment portfolios is not just about divesting from fossil fuels or reducing investments in high-emission assets. As investors, portfolio operations are shaped by the opportunities within the global economy and market environment, so decarbonization strategies need to consider a broader perspective, responding to the challenges of global climate change and seizing investment opportunities for sustainable development. To effectively achieve decarbonization, it is essential to understand that different regions, industries, and companies will have significant differences in their decarbonization progress. Active asset management companies must adapt to this complex situation, avoiding climate-related risks while actively capturing potential opportunities. These risks may include companies failing to fulfill their net zero emission commitments or supply chain disruptions due to climate disasters. The positions of governments and policymakers can sometimes be a barrier to driving decarbonization. However, once governments clearly state their goals and priorities, they can provide clear direction for businesses to set their decarbonization goals in alignment with macro policies. In diversified asset investments, combining decarbonization strategies with the global goal of achieving net zero emissions by 2050 ensures that portfolios are moving towards long-term sustainable development visions. Investors must be aware that the decarbonization process involves various trade-offs. While improving the climate change performance of investment portfolios without significantly increasing investment risks is possible, overly aggressive strategies may pose additional risks for active investors. The key is that when investors choose to take on such risks, it is not simply to pursue short-term financial returns, but based on long-term sustainable development goals. This requires collaboration between businesses and governments to ensure that decision-making processes remain highly transparent, helping investors make wiser decisions while seeking environmental benefits and avoiding excessive risks. The decarbonization policies of governments worldwide will create clear winners and losers in different industries, significantly affecting the competitiveness of companies within each industry. This is directly related to the risk management and defensive capabilities of future investment portfolios. A key measure is the ability to track emissions or climate-related indicators in investment portfolios. These indicators provide a clear perspective to assess whether a company, industry, or region complies with government regulations and has enough resilience to respond to future policy changes and climate risks. Diversified asset investors have flexibility, while stock investors need to consider carbon footprint The greatest advantage of diversified asset investors lies in their flexibility to adjust and improve. They can flexibly allocate assets between different asset classes and adopt diversified strategies to achieve investment goals. In addition, through active engagement and influence, they can not only drive companies towards sustainable development but also contribute to actual improvements in the environment and society. For stock investors, two key elements are worth considering: the carbon footprint of the portfolio and the trend of reducing this carbon footprint over time. Implied temperature rise can translate a company's decarbonization goals into specific temperature scores, providing stock investors with a powerful tool to align their investment decisions with global climate goals and continuously monitor the company's progress in achieving these goals. To develop an effective decarbonization strategy, it is essential to realize that your investment portfolio does not operate in isolation. The process of achieving net zero emissions may come with high costs and may lead to over-concentration risks, such as excluding entire industry sectors and missing out on potential opportunities. Therefore, investors should flexibly use various tools to drive real-world change, including active participation in stock and credit markets, focusing on the specific impact of each asset on the global environment. As active asset managers, it is crucial to remain vigilant and establish a comprehensive monitoring framework to track key indicators such as emission profiles and implied temperature rise. This not only helps continuously assess the carbon footprint of investment portfolios but also guides the identification of more opportunities and risk management in the global decarbonization process, ultimately achieving long-term sustainable returns.