The world is on fire: how can investors move from climate anxiety to action?
It’s been billed as humanity's last chance to save the planet. Even if you’re wary of hyperbole, it’s hard to deny that COP26 marks an important moment.
Nearly 60% of young people are “very” or “extremely” worried about climate change, according to research from The University of Bath in the UK.
But climate anxiety is not limited to the young. People across the generations want to see an urgent response from world leaders.
The scale of the problem can bring on a sense of doom and helplessness. How can my individual actions make a difference? Does it really matter if I eat less meat or fly less?
But of course, in a climate emergency, every action counts: every molecule of carbon that stays in the ground helps our future.
Like it or not, in our capitalist economic system money makes the world go round. What you do with your money does matter. And switching to sustainable pensions, investments and savings could be 23 times more impactful than lifestyle changes, the Make My Money Matter campaign estimates.
When it comes to investing, shareholders have the power to effect significant change.
Every atom of carbon that stays in the ground helps our future
The shake-up of ExxonMobil’s board this summer is a good example. Shareholder resolutions tabled by activist investors proposed four new board members. The oil giant lost three seats. This is because asset managers like Schroders supported the proposals and voted for change.
Climate action by investors can drive both financial returns and help to protect the planet. Avoiding carbon-intensive industries also reduces risk.
In the near term, COP26 developments could have direct implications for investors.
Carbon taxes put a price on carbon and emitters are charged based on what they release. This is necessary, and would be positive in the fight against climate change.
Of course, shares in companies that are the largest emitters, or those that are the most exposed to carbon in their operations, are likely to fare the worst if action on carbon pricing is taken.
When Schroders launched its Carbon Value at Risk tool* it showed 20% of profits generated by global companies were at risk if carbon prices should rise to $100/tonne, the level required to meet the 2015 Paris Agreement.
Climate conscious investors have already prepared for this – we know that all profits are not equal and that environmental impacts, like carbon emissions, are likely to be a drag on profits in the future.
While investors can improve returns by avoiding risk, there are of course enormous potential gains to be made through investments harnessing new cleaner technologies. Innovation provides real hope in the fight against climate change.
So COP26 gives us an opportunity, a moment in time on which I hope we will look back and say that coordinated action was taken.
This article first appeared in The i Paper on 29 October
*Schroders’ Carbon Value at Risk model estimates the way companies make money and how their profits would change if carbon prices rose significantly. Schroders Carbon Value at Risk model was launched in 2017.
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.