AB: Climate-Focused Investing Two Approaches for Equity Portfolios

NORTHAMPTON, MA / ACCESSWIRE / February 28, 2024 / AllianceBernstein

Erin Bigley, CFA| Chief Responsibility Officer

Kent Hargis, PhD| Chief Investment Officer-Strategic Core Equities; Portfolio Manager-Global Low Carbon Strategy

David Wheeler, CFA| Portfolio Manager-Sustainable Climate Solutions; Senior Research Analyst-Sustainable Thematic Equities

Transcript

Erin Bigley: There are several different ways you can approach investing in the climate-focused space. Can you each tell me a little bit about the different styles of climate-focused investing?

Kent Hargis: One strategy is more of a core-focused approach, being more diversified across sectors, across countries, identifying high-quality companies that are at reasonable prices that are having a positive effect on climate change.

David Wheeler: A solutions approach is thinking about the challenges of climate out there. And there's really two things. One is the need to reduce emissions, and the second is to adapt to the impacts of climate change that are already happening. So our approach is to invest in companies whose products and services are helping to address those climate challenges. And we're seeing massive growth and investment in those areas.

Erin Bigley: You've both described an active investment-management approach. Can you tell me about the benefits of an active approach when focusing on climate investments?

David Wheeler: Active approach is key. Investing in companies that are thematically relevant to climate is not enough. It's also important to invest in high-quality companies that can perform well in any environment. So when it comes to adding alpha over time and generating strong financial returns for clients, we think coupling a thematic approach with a focus on high-quality names is the best way to deliver alpha for clients.

Kent Hargis: We also think it's important in terms of risk management. Passive approaches may have exposure to things like rising interest rates and other style exposures. And we think that an active approach would help us to mitigate some of these macro effects or the style effects to give you what you're targeting in the portfolio that you're choosing.

Erin Bigley: So tell me a bit about the types of companies that you'd find in some of these climate-focused portfolios.

David Wheeler: One of the biggest challenges is the need to reduce emissions. So if you think of something, let's say airlines, and how can that business reduce those emissions, there's one key area, and it's renewable fuels, clean fuels. And so there's companies that produce a sustainable aviation fuel where the emissions are about 80% lower than traditional fossil jet fuel. So companies that can produce that are going to see strong demand for that product in the years ahead, and that can lead to strong return performance for those names.