What is Ruffer’s approach to meeting the goals of NZAM?

The core goal of NZAM is reducing emissions in the sectors its signatories invest in. Only through achieving this can real world emissions be lowered in line with the goals of the Paris Agreement.

This approach is very different to building a green portfolio. Investing in a portfolio of low emission stocks and avoiding carbon intensive sectors may well achieve superficial decarbonisation within the portfolio. But it may have little or no impact on reducing real world emissions.

All elements of the economy, including both the consumers and the producers of carbon intensive goods and services, have a role to play in reducing their emissions. In Ruffer’s view, real progress can be achieved only by acknowledging this and working with all sectors, even those that are hard to abate. Blanket divestment is not the answer. We must engage with companies and issuers in order to catalyse the capital flows and innovation required to decarbonise the economy.

The strength of Ruffer’s investment approach has always been the combination of a top-down macro understanding of potential regime/system changes with bottom-up research into the most appropriate securities to protect against and benefit from these changes (Figure 2). The Net Zero transition will be one of the key system changes of the coming decades. Ruffer’s ability to combine macro and micro lenses – alongside a strong programme of stewardship – will be crucial to navigating the risks and capturing the opportunities the transition presents.

Equally crucial, our approach is unconstrained. This means we can make investment decisions which reflect our assessment of the degree to which climate risk is reflected in a security’s valuation. We can also explore different ways of protecting financial capital from climate risk, whilst capitalising on underappreciated drivers of real-world decarbonisation.

Done well, this can help to manage climate risk in our portfolio, support the energy transition and deliver returns for our investors.