Climate change is an important ESG topic for many investors who want to assess more than the financial return of their decisions. Find out how you might incorporate climate change into your investment decisions, whether it could affect the outcome, and how you might measure the impact.
ESG (environmental, social, and governance) investing involves considering factors from these three pillars alongside financial ones when making investment decisions. Climate change falls under the environmental pillar, and it’s a topic that extends beyond ESG investing.
Indeed, according to a YouGov poll (17 April 2025), 84% of Britons believe the climate is changing, and 67% say it is human activity that has caused it. 37% of participants said they believe the environment and climate change should be one of the top areas where the government should increase spending, compared to 10% who believe it is an area of spending most deserving of cuts.
As an ESG investor, you might consider climate change because of your concerns and because you want your financial decisions to reflect these. In addition, climate change has the potential to affect business operations, pose a financial risk, and affect investment returns.
So, how might climate change affect you as an investor?
How you might make climate change part of your ESG strategy
If you want your ESG investment portfolio to support climate change efforts, there are several ways you might achieve this.
First, you may consider excluding companies that don’t align with your views. For example, when you’re considering climate change, you might avoid investing in firms that are associated with fossil fuels or energy-intensive sectors, such as AI.
Second, you might actively seek to invest in companies taking action that aligns with your values. That might mean investing in businesses that are working on climate solutions, have made net-zero commitments, or are transparent about their carbon emissions.
Third, green bonds could provide an alternative to traditional bonds. Green bonds are designed to raise money for specific projects that will have a positive impact on the environment. These projects could include renewable energy, clean transport, or sustainable waste management.
Reviewing each individual investment opportunity can be time-consuming, and it may be difficult to access all the information you need. For some investors, investing in funds with ESG criteria could be useful.
A fund will pool your money with that of other investors to invest in a range of assets and businesses in line with the fund’s criteria. You can find many sustainable funds, including some with a focus on climate change, which might suit your needs.
Remember, an investment opportunity that aligns with your ESG values isn’t automatically right for you. You should still consider financial factors and whether the investment is right for your goals and risk profile.
Considering climate change doesn’t mean you have to accept lower investment returns
While the impact of your investments on the climate might be important to you, the financial outcome is also essential.
It’s a misconception that ESG investing automatically means accepting lower returns. Indeed, data from Morgan Stanley (8 September 2025) found that sustainable funds outperformed their traditional counterparts in the first half of 2025.
What’s more, a survey of large, global asset owners, such as government-linked pension funds and foundations, found that 85% were concerned about the impact of climate risk, according to an article from LSEG (12 February 2026).
By considering climate risks now, your portfolio could be in a better position to weather the effects of climate change in the future.
Of course, investment returns cannot be guaranteed. All investments carry some risk, and there’s a chance the value of your investments could fall as well as rise, whether you’re considering ESG factors or not.
Measuring the impact of your ESG portfolio
One of the challenges of ESG investing is that it can be difficult to assess the impact you’re having.
There isn’t a single metric you can use to calculate the effect your portfolio is having in combating climate change. Instead, you might use a mixture of methods, such as:
- Measuring and monitoring the carbon footprint of your portfolio
- Assessing how the companies in your portfolio align with a low-carbon future
- Using third-party ratings and climate scores, which may consider areas like carbon exposure and transition risks.
When you’re reviewing an ESG portfolio, setting out clear goals can help you measure the impact of your decisions. For example, rather than aiming to “tackle climate change through investments”, you might state: “I want to reduce my portfolio’s carbon footprint by 10% over the next two years.”
Get in touch to talk about your investments
Whether you already consider ESG factors or you would like to start doing so, we could review your portfolio to assess how it aligns with your values and personal goals. Please get in touch to talk to one of our team.
Please note: This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.