When deciding how to meet their sustainability objectives in their fixed income portfolios, asset owners need access to in-depth analysis of the future path of carbon reduction.
Through its sophisticated ‘data lake' - a vast repository of raw investment data - Columbia Threadneedle has made several observations through running forecast scenarios across client portfolios.
The data lake captures more than 300 million unique financial and non-financial data points for over ten thousand issuers over more than the past decade, culminating in over 300 carbon-relevant factors per issuer.
This analysis has resulted in a diverse set of projections across credit portfolios. Some forecasts for decarbonisation imply low levels of reductions, while some are much higher. The bottom-up carbon composition of an investment portfolio and its sectoral makeup both play a role in forecast reductions, says Tammie Tang, credit portfolio manager for institutional clients.
Longer term, Columbia Threadneedle is expecting many other analysis tools to emerge that can support investors on a path of progressive carbon reduction. This includes the capacity to model physical asset risk, as Tang explains: "We could capture every single building and infrastructure in the portfolio, and then stress it for hazards like heat stress and flood risk, and we can have models that look at its transition risk. For example, what is the risk of it of not being able to transition to a low carbon pathway?"
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