Please help keep this Site Going

Menopausal Mother Nature

News about Climate Change and our Planet

Uncategorized

Is Your Portfolio Ready for Global Warming? | by Abby R | Jul, 2022 – DataDrivenInvestor

An important consideration for long-term investors seeking higher returns

Photo by Ehud Neuhaus on Unsplash

Most investors don’t think about climate change when they are constructing their portfolios. I certainly didn’t at first.

Most know that climate models predict that Earth’s global average temperate will rise in the future. Scientists, researchers, and policymakers are scrambling to find a solution to climbing temperatures. Investors, though, are usually left out.

Recently, though, mounting evidence is showing a two-way relationship between investments and climate change. Climate change can affect your returns, AND your portfolio can affect climate change. It’s becoming increasingly obvious that investors cannot overlook this environmental change for long.

Investment Returns

Mercer, an American asset management firm, previously released Investing in a Time of Climate Change — The Sequel. In the document, Mercer determined the effects of different risk factors of climate change on investment returns. They picked three scenarios. A 2°C, 3°C and 4°C average warming increase over 2030, 2050, and 2100.

The report displayed that impacted returns because of climate change are very likely to occur, whether a 2°C or 4°C change is found. This is likely because climate change could potentially universally increase costs for many companies, regardless of industry. However, there is an opportunity for investors in the 2°C change versus the 4°C change, especially for those with long-term, diversified portfolios.

Climate change will also likely affect average returns based on industry. At some point, In the 2015 report, specifically, Mercer indicated that the renewable and nonrenewable energy sectors will likely be impacted. Coal and electric utilities were projects to have negative sensitivities, while renewable energy sources had the highest positive sensitivities.

Specifically, Mercer recommended:

To optimize investment outcomes, investors should consider climate risks at the asset class, industry-sector, and industry sub-sector level. This will require changes in how they work with service providers.

Uncertainty about the future should not be a barrier to action.

Although there are risks with every type of investing, alternative energy and green tech companies are likely to become more popular in the coming decades, especially when the effects of climate change are felt more widespread. It is likely that regulators will also spring into action and regulate companies that are substantially contributing to emissions. This suggests it is important for investors to look for whether these types of companies are part of their portfolios. If policy-makers are successful in doing so, green companies will likely lead and increase returns.

Trends

Deloitte claims that there is increased attention to clean energy technologies, especially in the next generations. Leading the pack will likely be solar energy because of an 85% cost reduction in the past decade. Moreover, the expansion of solar community projects will have a large impact in this sub-sector.

Companies that are the center of climate-change focused portfolios center on renewable energy, sustainable sourcing, electric vehicles, and low-carbon emissions. Although these companies with sustainable, environment initiatives usually have high capital investments, they are well-positioned for the long-term. Portfolios that are climate-change focused also take into account the impacts that climate change can have on assets within the portfolio.

Can Investment Affect Climate Change?

The short answer seems to be yes. Investments likely do have an effect on curbing climate change.

Sound investments into ESG are needed to address climate change. This will allow for reduced carbon emissions, which will mitigate climate change risks. The ability of investments to matter, though, is dependent on due diligence. Trillions of dollars are needed to address climate change issues. However, many that invest in sustainable companies that claim to set net-zero carbon emissions targets; however, these companies routinely fail to meet objectives and continue to contribute to emissions. This seems to indicate that is important for portfolio owners to determine whether companies will have a long-term beneficial or negative impact on global warming.

There has been a recent rise in private investments that seek to do this. They aspire to invest in companies that are developing innovative technologies to reduce carbon emissions.

Conclusions

Climate change is a reality for the future and is important to consider within your portfolio. We are only beginning to feel the effects of climate change. For long-term success, it is likely going to be fruitful to invest in companies that are taking this into consideration.

LEAVE A RESPONSE

Please help keep this Site Going