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

Rick Stathers

Head of Responsible Investment

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.

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