Why climate risk considerations are especially relevant for buy-and-maintain portfolios

Countries, companies and investors are making firm commitments to reach net zero, in line with the Paris Agreement. According to Robeco’s 2021 Global Climate Survey, climate change will be central to the investment strategy of almost 90% of global investors in the next two years, while more than half of investors will commit to aligning their investments with the ambition to realize a net zero economy by 2050. These commitments emanate not only from a conviction about the urgency of collective action to mitigate climate change. They are driven, too, by investors’ realization that their assets are exposed to climate risk, and that it is critical that these risks are managed through prudent portfolio construction and bond selection.

These concerns around climate risk mitigation are especially critical for buy-and-maintain investors, who are limited in their ability to trade assets and who have a long-term investment horizon. When constructing these bespoke portfolios, Robeco assesses climate risks across sectors and companies, and optimally allocates bonds across the maturity spectrum, thereby preserving sector diversification through time and positioning companies with lower carbon footprint on longer tenors.

We outline our forward-looking process and discuss our approach to allocating carbon footprint across maturity buckets. A detailed case study for a buy-and-maintain cashflow-matching portfolio illustrates the practical steps and considerations when, for example, limiting turnover while transitioning towards a lower carbon footprint portfolio.