The section below provides additional, team specific, information on climate change. Further information on our approach to climate change can be found in our climate change statement.
Team Climate Change Statement
Climate change is the most material ESG theme affecting our investment strategy. Efforts are underway to decarbonise the world’s economy in order to reduce global warming. The effort to reduce carbon emissions spread from Europe in the 2000s to the US west and east coasts in the latter half of the 2000s, and from there to China, Japan and US mid-continent in the early 2010s.
Our investment approach takes account of a company's carbon exposure in various ways.
For example, our quality score includes an environmental assessment of each company that takes account of the carbon intensity of that company. This means that companies with higher levels of carbon exposure are naturally discounted more than those with cleaner generation portfolios.
We also take account of carbon risk within our financial models, to the extent that it has direct implications for the earnings potential of a business. For example, due to the evolution of shale gas in the US, coupled with the reduced cost curves and tax incentives for renewables, we have seen the amount of coal used decline rapidly. Since the volume of coal hauled is explicitly modelled within our freight rail volume numbers, we adjust those accordingly to take account of the structural change that we have seen in the market.
Holdings in companies with fossil fuel exposure
The table on the right outlines companies that the team invests in, which have exposure to fossil fuels. There is no revenue, cost curve or other threshold applied and so the fossil fuel exposure should not be seen as a guide to the risk of stranded assets, however it is reasonable to expect that the attention paid to the risk of stranded assets by teams will correspond to their fossil fuel exposure.