June 10, 2020 Read More →

Mounting evidence that going green keeps investments from falling into red

Business Day:

The skill of an investor is to find price. In the case of equities, it is the price of a stock. In the case of debt, it is the bond price. The investor then determines whether the broader market has undervalued or overvalued the asset, and based on this either buys, holds or sells. But in the age of climate change, are investors able to find the right price? Does climate change throw up unknowns that even the most experienced investor is unable to detect?

We have a good idea what the cost of climate change is likely to be. Without any corrective action, the respected Stern Report of 2006 estimates a cumulative cost equating to 20% of global GDP, resulting from future extreme climatic events. However, climate change is more complex than this. At a granular level, it is impossible to accurately predict the cost or benefit of a changing climate to individual companies. This is problematic for advisers, individual investors and fund managers, whose job it is to predict future price trends.

Even the most successful investment houses are being caught short by the implications of climate change. Think-tank the Institute for Energy Economics and Financial Analysis reported that BlackRock, the world’s largest investment house by assets under management, eroded about $90bn of investor value in the decade up to 2017. The cause was an over-exposure to poor-performing fossil fuel and energy stocks — heavy greenhouse gas emitters, and the main culprits of global warming and climate change — while the rest of the market bulled ahead at a much faster pace.

 [Alex Hetherington]

More: Investors must wake up to new climate game

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