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  • Writer's pictureClimate Alpha

Climate volatility as an investment tailwind



Climate Alpha is pleased to announce the launch of our portfolio of products and services that focus on thematic investing through a climate and geospatial lens. We call this our Climate Investment Advisory (CIA). Our primary objective is to help asset managers identify alpha generating investment opportunities through the application of our proprietary spatial finance framework, leveraging our machine learning platform blended with deep discretionary research. We turn relevant climate and geospatial features into material factors that can be applied to a multi-strategy investment framework. 


We take a holistic and complex systems approach to research, data and insight generation. Indeed, “climate” refers to both the physical climate system as well as climate related policies, technologies, natural resources and commodities, socioeconomic relationships and many other variables that interact to exert material influence on economic activity.  


We have aligned our data and analyses with five thematic categories that are best positioned to capture the potential for asset appreciation in an increasingly climate-driven economy: 

  • Land & Real Estate  

  • Water & the Agriculture Value Chain  

  • Energy, Decarbonization & the Net Zero Transition 

  • Transport & Mobility  

  • Nature Based Solutions 

Our investment framework deploys a combination of quantitative methods grounded in spatial finance with fundamental research to develop market tracking and forward-looking indices geared to identify underpriced assets and construct hypothetical portfolios that assess performance in real time. We will apply these methods to investable assets, with output updated at a monthly frequency. This approach will lead to significant value for our clients as we generate ideas that are not captured by traditional techniques alone.   


Long duration investors require a more comprehensive view of the interconnections between the underlying resources, namely water, required to provide food, fiber and energy to a growing population. Traditional methods around speculation of stocks and flows of supply and their associated price movements are no longer enough to capitalize on market volatility in the agriculture, material and energy sectors. The identification and quantification of exposures by sector using non-traditional data and analysis allows for early signal detection towards spotting potential opportunities and managing risk related to market activity. Flexible and robust supply chains are also necessary to respond to unforeseen disruptions, whether geopolitical, policy or climate driven.  


New technologies, companies and industries will emerge to support the new energy economy. The Inflation Reduction Act (IRA) is just the first wave in an ongoing stream of legislation that will steer capital deployment to industries and population centers that will sit at the forefront of the energy transition. This climate tailwind will serve as a catalyst for which companies – and which geographies -- will benefit as the global economy transitions to cleaner and sustainable energy sources.  


For this reason, we have created an in-house Industrial Renaissance Tracker (IRT) to help investors identify where these geographic centers of gravity will arise, and which companies are best positioned to capitalize on them.  The IRT captures the public and private investment trends that map to geographic hubs of the net-zero economy as well as material investment opportunities in alternative energy, charging and distribution networks, battery manufacturing facilities, green metals, sustainable aviation fuels, data centers, and other sectors satisfying consumer demand. 


Our research has demonstrated the statistical significance of a financial tracking index that incorporates climate and socioeconomic data and relates it to share price for publicly listed equities. We have also shown that there is a robust relationship between financial performance and variables related to geographies that are highlighted in committed or planned deal flow accelerated by legislation passed to support the energy transition. Therefore, we can conclude that Climate Alpha’s training data and methods can provide value to asset managers looking to assess the potential future performance of companies currently or planning to deploy capital in regions leading the transition.  


To learn more about how you can use spatial finance to deploy capital productively, reach out to a Climate Alpha team member or visit our website https://www.climatealpha.ai/climate-investment-advisory. 

 

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