The 2022 World Economic Forum’s Global Risks Report lists climate action failure as the most severe risk on a global scale over the next 10 years.

The two main climate risks that companies and investors face are physical and transitional risks. Physical risks may have financial implications for organisations, such as direct damage to assets and indirect impacts from supply chain disruption. Organisations’ financial performance may also be affected by changes in water availability, sourcing, and quality; food security; and extreme temperature changes affecting operations, supply chains and transport needs.

Transitioning to a net zero economy will entail policy, legal, technology and market changes to mitigate and adapt to requirements connected with climate change. Depending on the nature and speed of these changes, transition may pose varying levels of financial and reputational risk to organisations, and could also mean some sectors of the economy face big shifts in asset values or higher costs of doing business.

Our research team gathers information to support our investment decision making, while working to understand the possible impacts for our clients. We regularly share our thoughts through insight papers and our ‘what investors need to know’ webinar series, which can be viewed here.

Playing our part

"Following the UN climate talks in Glasgow last year, the urgency of greater action required to tackle climate change could not be clearer. Despite a pandemic-related economic slowdown, greenhouse gas (GHG) concentrations reached new highs in 2020."

Following the UN climate talks in Glasgow last year, the urgency of greater action required to tackle climate change could not be clearer. Despite a pandemic-related economic slowdown, greenhouse gas (GHG) concentrations reached new highs in 2020.

The latest evidence from the Intergovernmental Panel on Climate Change (IPCC) is irrefutable: unless immediate and large-scale action is taken, the world is not on track to meet the Paris Agreement target of limiting global warming to 1.5°C above pre-industrial levels. To achieve this, by 2030 global CO² emissions need to be reduced by 45% compared to 2010 levels and reach net zero by 2050.

At Rathbones, we recognise our responsibility to contribute to the transition and are focused on measuring and reducing our operational footprint, as well as that of our investment portfolios. This means we need to understand how every cog in the Rathbones wheel is affecting the planet. For our clients, we have a responsibility to understand how climate change may impact our portfolios and what we can do to minimise the risks, be they physical or transitional.

"Our purpose is not just a tag line; we believe that to deliver our best for our stakeholders we must think, act and invest responsibly."

Our purpose is not just a tag line; we believe that to deliver our best for our stakeholders we must think, act and invest responsibly.

Our journey to net zero

In July 2021, we announced our intention to be a net zero emissions business by 2050 or sooner. This ambition aligns with the need to limit warming to no more than 1.5^oC above pre-industrial levels.

Using 2020 as our baseline year, and having undertaken a full emissions inventory, we have used the Science-Based Targets initiative (SBTi) methodology to set our operational and investment targets. We will work to achieve a 42% reduction in operational and supply chain emissions by 2030. With regard to our investments, we want to see at least 57% of our underlying holdings having committed to, or set, their own SBTi-aligned target by 2030.

To deliver on our commitments, we will build on the 81% reduction in operational carbon intensity per full-time employee we have achieved since 2013 and complete the transition of our offices to renewable energy sources by the end of 2025. Together, these measures will help us meet our internal target of a 21% reduction across our Scope 1 and 2 and operational Scope 3 emissions, as defined in the Greenhouse Gas Protocol (GSP), by 2025.

In addition to these group targets, Rathbone Greenbank Investments (Greenbank) – our specialist ethical, sustainable and impact arm – announced plans to reach net zero emissions by 2040, including operations, supply chain and investments. Greenbank followed the Net Zero Investment Framework (NZIF) to set targets covering the investments it manages and steps have already been taken to make quantifiable achievements in each of the three GSP scopes.

Managing our investment impact

Decarbonising the global economy will require a complete transformation of the way the world produces and consumes energy, as well as radical measures to cut emissions from other key sources such as transport and land use, including agriculture. This will involve a rapid increase in carbon-free sources of electricity, and related shifts in production methods and consumption patterns. These shifts require a redeployment of capital in support of the transition, creating opportunities as well as risks.

"We have a fiduciary duty, as stewards and allocators of capital, to understand how climate change can impact our portfolios and allocate assets to minimise climate risks, be they physical or transitional."

As a leading wealth manager, with over £68.2bn in funds under management (FUMA), we recognise that climate risks can materially affect the performance and valuation of our investments. We therefore have a fiduciary duty, as stewards and allocators of capital, to understand how climate change can impact our portfolios and allocate assets to minimise climate risks, be they physical or transitional.

Companies that set ambitious targets and credible implementation plans in line with achieving net zero emissions will become increasingly attractive investment propositions. Those that fail to do so will find themselves at a competitive disadvantage, exposed to regulatory risks and prone to finding their assets stranded.

Given the scale of the problem, and the necessity for solutions to be global in scope, we believe in the power of collaborative engagements and are members of the Institutional Investors Group on Climate Change (IIGCC) and the CA100+ coalition.

In 2021, we published our climate change statement and strengthened our voting policy to align with new regulation and deepen the integration of climate-related factors into the voting process. Our policy now includes clear expectations – in line with the Task Force on Climate-related Financial Disclosures (TCFD) and the CA100+ Net Zero Alignment Indicators – on how companies will be assessed against different criteria in order to determine the robustness and credibility of their net zero decarbonisation strategies.

You can read more about our approach to managing climate risk through our business in our responsible investment and our responsible business reports here.