Spotlight on Caroline Cook, Head of Climate Change, Baillie Gifford
Global Thought Leader Spotlight
Caroline Cook, Head of Climate Change, Baillie Gifford
In my role as the Head of Climate Change at Baillie Gifford, responding well to the needs of regulation and client assurance are foundational, but my core task at Baillie Gifford is to challenge our investors to think deeper about the relevance of climate-related themes and to enhance the integration of these into our investment process.
Our focus on improving outcomes for clients spans idea generation, portfolio construction and ownership. It means working with different investment strategies that may have different objectives and client expectations. It involves engaging and supporting companies. And, in a very disruptive transition, it puts the onus on me to seek out the external expertise and differentiated perspectives that can help our investors navigate the future.
Key themes driving risks and opportunities
The global climate challenge poses not one, but two simultaneous transitions for long-term investors to consider. A technology transition in energy sources and uses, and an unparalleled shift in our physical environment. While many investors will feel on familiar ground with the potential disruptions offered by new energy technologies, none of us have been exposed to the extent of physical change predicted by the science. And across both transitions, sits an extra layer of unpredictability in social values and government policy.
Navigating this effectively as a long-term investor requires great scenario awareness. The twin transitions will have whole-economy impacts with consequences well beyond the first order. Complexity and non-linear shifts will be rife. Your pre-conceptions, or world views, may not be those that will win out. Determining themes that endure across different futures, and flags that indicate which pathway is in fact emerging, should be a source of edge.
The current batch of quantitative-based scenario models offered to portfolio managers do little to help. Often purporting to do more than they can, they risk misdirection, and do not advance insight.
Taking scenario work back to basics, into the realm of narratives that can be plausible, differentiated and complex, should be more educational and more impactful. Equipped for a better understanding of possible futures, investors can be more conscious about the assumptions built into their stock choices and portfolio decisions – and more adaptable to the world that unfolds as a result.
The main implications for institutional and sophisticated investors
A rapid, orderly, coordinated transition that limits the global temperature increase to well below 2C this century looks increasingly unlikely.
A failed transition that sees slow technology deployment, persistent emissions and ever-higher temperatures may prove increasingly disruptive and inflationary, eroding overall economic capacity.
We can still hope that this outcome is unlikely. Our future is likely to lie somewhere in the messy middle: one of any number of disorderly pathways that involves the interaction of technology, geography and society.
As investors work through scenarios they can create their most relevant use-cases. This may be at the macro-economic level: weighing up different outcomes for growth, interest rates and inflation to guide overall asset allocation by class and region. It may be in portfolio construction: tilting selection to one particular outcome or seeking resilience to uncertainty. And most fundamentally, it can guide stock selection and engagement with investee companies. While investors may want some assets that leverage exposure to certain themes, the task for most holdings in most portfolios will be to assess management awareness and business adaptability against the transition challenges as an additional indicator of quality.
The enduring themes of plausible transition scenarios include the persistence of cost reduction as energy moves from commodity to technology, the increased real-world complexity posed by a changing climate, and the social challenges of delivering policies that price carbon – critical to bringing the environmental externalities of emissions inside the economic system. These trends pose questions for most investors, but are of particular relevance to those setting, or running, mandates to support the timely achievement of net zero. Successfully combining positive impact with good investment returns requires a dynamic approach focused on real world outcomes: balancing policy risk, backing corporate leadership across many sectors and perhaps accepting that those companies helping us adapt to a warming world will be a necessary part of a successful future.
No scenario will be right. The future will remain uncertain. But in a world where the risks and opportunities of the energy and climate transitions remain volatile and mis-priced, there is advantage to be found in testing your preconceptions and imagining very different outcomes.
Caroline will be presenting at Global Investment Institute’s upcoming Net Zero Investment Forum, taking place on Thursday, 13 March 2025 at the Grand Hyatt Melbourne, Victoria. To register your interest in attending, click here or for more information email zlatan@globalii.com.au.
Caroline Cook, Head of Climate Change, Baillie Gifford
As Head of Climate Change, Caroline works across the firm to integrate our understanding of energy, climate and environmental issues into our investment practice. As these interlinked transitions compound, her aim is to improve outcomes for all our clients.
Caroline joined Baillie Gifford in January 2020, having spent the prior four years leading cross-sector energy transition research within Deutsche Bank’s equity research business. Prior to that, she focused on the oil and gas sector, both as an independent consultant and as co-head of Deutsche Bank’s number one rated Global and European oils team.
Caroline graduated from Cambridge with an MA in Modern History in 1989.
If you have enjoyed reading this article, please subscribe to GII Insights, delivered monthly, direct to your inbox and it is FREE!
Disclaimer
The views expressed in this publication are solely those of the individual and do not reflect those of their employer organisation. These views should not be relied on as research or investment advice regarding any stock and are subject to change. There is no guarantee that any forecasts made will come to pass. Forecasts are subject to numerous assumptions, risks, and uncertainties, which change over time, and the individual undertakes no duty to update any such forecasts. International investing may involve risk of capital loss from unfavourable fluctuations in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations.
All information contained within this publication is general advice only, as the knowledge levels and needs of all individual and corporate investors vary greatly this publication should not be used solely as a decision-making tool, further opinions and information should be sought before making an investment decision. It is the recommendation of Global Investment Institute (GII) that you seek the opinions of a fee-for-service, independent investment adviser before making any investment decision.
The authors, directors or guest writers may have a financial interest as investors, trustees or directors in investments discussed or recommended in this document. It has been assessed by the editors that these financial interests have not had an impact on the material contained here within.
All material appearing in GII’s Global Investment Insights is copyright, reproduction in whole or part is not permitted without written permission from the Publisher, Global Investment Institute.