Climate Change Is A Hot Topic For Investors

Lisa Smith, BA (Hons), CeFA
By

Climate change leaves some investors cold, but for others companies in the sector are hot picks.

Risk is the issue as governments and companies change the rules almost at a whim.

Recently, the UK government reduced the opportunity of generous tax relief on community energy projects accusing promoters of schemes of tax abuses.

In this fast moving sector, nothing is certain and that doubt leaves some investors lukewarm about staking their cash.

But climate change is never far from any agendas as executives strive to minimise their carbon footprint.

Forecasting effects of global warming

Investment analysts are trying to forecast how global warming will impact on portfolios and caution that every investor needs to factor climate change into their strategies.

Ewen Cameron Watt, chief investment strategist at BlackRock said: “Whatever your opinion about global warming and what may or may not lie behind it, decisions made by governments, in the boardrooms at corporations and the growth of technology firms in the sector cannot be ignored.

“These risks and opportunities can affect stock and commodity prices, so investors need to know that their businesses are complying with regulations and are not risking heavy fines”

An example of this is the Volkswagen scandal where the company fitted software to hundreds of thousands of cars designed to dupe emissions tests.

Stocks in the company have plunged since the revelation – and now Volkswagen has lost ground as a brand seeing sales fall and could face billions of pounds in fines around the world.

Derisking to avoid the severe weather

Watt has also laid out some of the points investors should consider about climate change:

  • Many investors piled into what they considered good investments only to find regulatory and technology changes have left them with ‘stranded assets’ that generate no return and cannot be sold.

“This may see a discount market for stranded assets develop,” he said

  • Increasingly severe weather is leading to natural disasters decimating some insurance firms

Claims for storms, tidal waves and earthquakes are rising and insurers are changing the way they underwrite the risk and hike prices to compensate.

“Examining portfolios for assets that are not climate friendly and dumping them is one way to try and derisk,” said Watt.

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