The impact of climate change on investing
Head of Responsible Investment, Rick Stathers, asks three questions about how climate change may affect your investments.
24 April 2015
Climate change target
Six years ago governments committed to limiting global warming to no more than 2°C above pre-industrial temperatures. Temperatures beyond this level, scientists believe, threaten catastrophic climate change.
In the next 40-50 years the world’s economy needs to achieve carbon neutrality. This will have a significant impact on the investment industry.
As a result investors need to ask themselves three questions regarding climate change and their portfolios:
What are our assumptions about GDP?
Assumptions about valuations need to be considered in light of climate change.
There is much debate about how climate change will impact future economic growth and whether it is accounted for in GDP growth forecasts.
What are our assumptions about stocks with specific exposure?
Fossil fuel stocks are valued on their carbon assets but in order to limit global warming, research suggests that we can only burn one-fifth of these fossil fuel reserves.
There is also the potential impact on agriculture from extreme temperatures and on the valuation of companies with exposure to agriculture.
What impact will climate change have across a portfolio?
We need to consider the impact of climate change across the whole global economy including companies’ carbon targets and the carbon footprint of a portfolio as a whole.
- Rick Stathers
- Responsible Investment
- Climate Change
Important Information: The views and opinions contained herein are those of Schroders’ Investment team, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. UK: Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA, is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored. Further information about Schroders can be found at www.schroders.com US: Schroder Investment Management North America Inc. is an indirect wholly owned subsidiary of Schroders plc, a SEC registered investment adviser and is registered in Canada in the capacity of Portfolio Manager with the Securities Commission in Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Quebec and Saskatchewan providing asset management products and services to clients in Canada. 875 Third Avenue, New York, NY, 10022, (212) 641-3800. www.schroders.com/us