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Pricing Climate Risk: A Multidisciplinary Approach

September 2019 
By Alan Hsu, Christopher Melendes, CFA, and Jennifer Rynne, CFA of Wellington Management

Climate change presents both significant risks and opportunities for investors

Alan Hsu
Managing Director Global Industry Analyst
Portfolio Manager of Hartford Environmental Opportunities Fund
Christopher Melendes, CFA
Fixed Income Credit Analyst
Jennifer Rynne, CFA
ESG Analyst

 

Like most secular trends, climate change presents significant opportunities and risks for investors, but so far, even asset owners with long-lived liabilities have largely failed to incorporate it into their portfolio management and capital allocation considerations. As active managers and fiduciaries, we consider it our responsibility to help protect and grow our clients’ assets. Working toward solutions that enable us to accurately price assets is a big part of that. We believe a multidisciplinary research approach enhances our ability to get climate-related asset repricing right.



Important Risks: Investing involves risk, including the possible loss of principal. Security prices fluctuate in value depending on general market and economic conditions and the prospects of individual companies. • Foreign investments may be more volatile and less liquid than U.S. investments and are subject to the risk of currency fluctuations and adverse political and economic developments. These risks may be greater for investments in emerging markets. • Small- and mid-cap securities can have greater risks and volatility than large-cap securities. • Risks of focusing investments on the utilities and industrials sectors include regulatory and legal developments, competitive pressures, pricing and rate pressures (utilities), rapid technological changes, potential product obsolescence, and liquidity risk. • Risks of focusing on investments that involve sustainability and environmentally responsible investment criteria may influence investment performance relative to the Fund’s benchmark or competing funds and expose the Fund to increased risks related to downturns or other adverse developments in that market segment.  

Any views expressed are those of the authors as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views. Any forward-looking estimates or statements are subject to change and actual results may vary. Certain data provided is that of a third party. While data is believed to be reliable, no assurance is being provided as to its accuracy or completeness.

The views expressed herein are those of Wellington Management, are for informational purposes only, and are subject to change based on prevailing market, economic, and other conditions. The views expressed may not reflect the opinions of Hartford Funds or any other sub-adviser to our funds. They should not be construed as research or investment advice nor should they be considered an offer or solicitation to buy or sell any security. This information is current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management or Hartford Funds.

WP504  213637