Discovering Value in Climate Change Investing

Integrating six climate considerations with impact on long-term business performance into an investment process.

Templeton Global Equity Group

PREVIEW

In this paper, we hope to answer two basic questions for investors:

  • Why should investors care about climate change?
  • How does Templeton approach climate-related risks and opportunities?

Our main goal is first to demonstrate six climate considerations that have a meaningful impact on long-term business performance, and second, to show how our investment process identifies and assesses companies poised to thrive in the transition to a lower carbon future.

We begin by considering expert research alongside our own analysis to highlight the significant societal and economic dislocations attributable to climate change. We point to a growing body of evidence suggesting that companies with superior ESG (environment, social and governance) practices have, on average, generated significant additional returns for shareholders. In our view, the companies best positioned to manage the risks and capitalize on the opportunities associated with climate change are of two basic kinds:

  1. those providing services and solutions to help others reduce emissions and increase energy efficiencies, and
  2. those more adaptable and resilient companies working to “future-proof” their business models by reducing emissions and resource use faster than their competitors.

As patient, fundamental value investors with a long track record in ESG investing,1 Templeton Global Equity Group is well-positioned to identify these companies and determine when shares of them can be acquired at valuations we regard as attractive. In this paper, we outline a series of steps and provide relevant examples to help explain how we integrate climate and overall ESG considerations into an investment process. In short, we assert that the business opportunities associated with the global response to climate change are immense—as are the risks of ignoring them—and that we at Templeton are exceptionally qualified to help clients invest effectively in climate change.

ENDNOTES

  1. Templeton is a pioneer in the field of responsible investing. As far back as the 1950s, Sir John Templeton was excluding from consideration the shares of companies whose activities conflicted with his personal ethics or those of his clients. While our process today has matured into a dynamic, comprehensive and repeatable assessment of the risks and opportunities associated with ESG considerations, we remain proud of our legacy as early conscientious investors and aware of its continued mark on our corporate culture.

What Are the Risks?

All investments involve risks, including possible loss or principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. Investments in emerging markets involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size and lesser liquidity.