The Paris Climate Change Agreement highlights the commitment of countries to address climate change. It reinforces the need for both investors and companies to assess, communicate and manage their climate change risks. The task is not without its challenges.

This paper outlines the approach used by AMP Capital to assess the exposure and risks to global and Australian equity portfolios of greenhouse gas emissions. We also identify some of the key considerations and limitations related to assessing and managing climate change risks. We believe that the metric used to assess risk is critical. The use of an inappropriate metric could potentially lead to the risk not being effectively or efficiently managed.

Disclosure of greenhouse gas emissions by companies is critical for investors. It is also an area in which some companies have a long way to go. In particular, companies need to disclose greenhouse gas emissions based on the equity ownership of facilities and not just those that they operate. Companies, also, need to provide appropriate disclosure to demonstrate that they are assessing and managing their climate change risks; enabling investors to do likewise.

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Author: Ian Woods, Head of Environmental,Social and Governance Investment Research, AMP Capital

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