Navigating climate-related risks in investment management of Norwegian equity funds

Abstract

This thesis explores the significance and integration of climate-related risks in the investment management of Norwegian equity funds. As global temperatures continue to reach unprecedented levels, dynamic conditions characterized by high complexity and uncertainty pose significant challenges to long-term investment strategies. Extending the nascent literature on climate-related risk in finance, 12 semi-structured interviews with asset management professionals were conducted, investigating their perceptions of relevant climate-related risk factors in the Norwegian market as well as the approaches adopted to assess and manage these. The findings indicate that certain climate-related risks are significant, with a predominant emphasis on transition risks over physical risks. Climate regulations, market preferences, and reputational concerns emerge as key risk drivers, influenced by stakeholder interests. The temporal horizon within which climate-related risks are anticipated to affect valuations highlights vulnerabilities in climate incentives, prompting conventional fund managers to favor investments in brown sectors like oil and gas over green alternatives. However, identifying firms optimally positioned to navigate evolving conditions within their industries is linked to enhanced investment potential. We observe considerable variability in methods employed to assess and manage climate-related risks, extending beyond traditional investment approaches and ESG assessments. Challenges involve data access, reliability, and comparability, highlighting the need for improved industry standards and reporting methodologies. Tools for assessing valuation impacts in different climate scenarios are increasingly adopted, although active company engagement remains invaluable for informed investment decisions.

Date of Award	28 Jun 2024
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Aurélien Acquier (Supervisor)