US fund manager AllianceBernstein is sending its investment staff back to school. The $580bn fund house has developed a training course with New York’s Columbia University on the financial risks of climate change, which the firm’s analysts and portfolio managers will be required to attend.
A pilot group of 35 AllianceBernstein portfolio managers and analysts attended sessions at Columbia’s Lamont-Doherty Earth Observatory earlier this year to learn how to factor climate risks, such as rising sea levels, wildfires and extreme weather, into their investment decisions.
In the coming months, another 75 investment professionals representing all of the firm’s “senior risk takers” across all asset classes, including equities, fixed income, real estate and alternatives, will take part in the training, said Gerry Paul, AllianceBernstein’s chief investment officer for North American value equities. “We are interested in having everyone understand how they will probably be affected by climate change from a cash flow perspective,” said Mr Paul.
The investment management industry is shifting quickly to take into account the impact of environmental risks on clients’ assets and vice versa. Four years on from the 2015 Paris agreement on how nations could work together to combat climate change, the number of institutional investors committed to cutting fossil fuel stocks from their portfolio recently passed 1,100.
The education initiative forms part of that larger trend of investment managers adapting to climate risks. This week, Wellington Management and Calpers, the $360bn California state employees’ pension fund, said they have been working with the Woods Hole Research Center since 2018 to quantitatively assess climate risks.
The three announced a new reporting framework for companies to better report their exposure to the physical effects of climate change. Wellington has found that companies often do not release the information investors would need properly to assess their exposure to different physical climate risks, like rising sea levels. The new framework aims to improve how companies relay information on climate risks to investors, as well as adapting to those risks.
Beyond physical risks, the AllianceBernstein programme also looks at “transition” risks — such as how carbon pricing laws might affect a company’s cash flow — and “mark-to-market” risks, where an asset may need to be repriced because of climate-related factors such as increased exposure to hurricanes or wildfires. “Our concern is not just that a risk materialises, it’s that a perception of the risk materialises,” says Paul DeNoon, a fixed income fund manager.
The initial training session at Columbia includes lectures, case studies, workshops and panel discussions. Arthur Lerner-Lam, deputy director of the Lamont-Doherty Earth Observatory, said the school and investment manager hope to facilitate a continuing dialogue.
The programme is designed to help investors to find data directly from researchers, instead of from special interest groups, and also to interrogate that data. “We are not going to do their job for them. We are going to give them the information necessary for their decision-making,” said Mr Lerner-Lam.
For Columbia, this relationship is part of a larger mission to break down the barriers between academia, capital markets and the public sector on climate science. “It’s no longer suitable for university knowledge to get written up in academic journals where it doesn’t get read,” said Mr Lerner-Lam. “We need to have an impact.”