Climate is top of investors’ agenda

global perspectives

Climate is top of investors’ agenda

Emma Cusworth - Head of Marketing Strategy

Emma Cusworth

Head of Marketing Strategy

The investment community seems to have reached a tipping point on climate change. At this year’s PRI In Person – the largest responsible investing conference ever – the agenda on day 1 was dominated by discussions  on the risks and opportunities global warming presents for investment returns.

Fiona Reynolds, CEO of the PRI, warned investors in her opening speech that volatility and value destruction may become the norm if we do not address climate change with the necessary pace and urgency.

“We won’t be able to say we didn’t know, we didn’t see it coming, or that we didn’t have time to prepare,” she said. “We did.”

The planet is currently on track to warm between 2.6 and 4 Degrees Centigrade by the end of this century, an outcome former US Vice President Al Gore described as “horrific”. With this in mind, it is likely we will see an increasingly strong response from regulators designed to push our global economies down the path to greater sustainability.

From investors’ point of view, the shape of the path is just as important as the eventual destination. The more disorderly (or volatile) the journey, the harder it is likely to be for investors to generate sustainable returns over the long term. 

In a poll of 1200 plus delegates attending the conference, 63% said they thought the most likely outcome was a ‘disorderly policy response’. Only 5% believed an orderly transition would likely transpire.
What this highlights, I believe, is the need for investors to take action sooner rather than later to prepare and protect portfolios. Yimei Li, CEO of ChinaAMC said: “As investors, it is our fiduciary duty to prepare for the worst, but push for the best.”

This approach, if adopted at scale across the investment industry, could help lessen the need for an aggressive policy response. In turn, that could lead to a more orderly transition, less volatility and value destruction, and ultimately greater sustainability of long-term returns.

Preparation doesn’t just mean protecting portfolios from risks, however. It is encouraging to hear the discussion on climate change this year evolve from a predominantly risk-based dialogue, to one of opportunity. 

As Al Gore pointed out: “Investors are increasingly waking up to the dangers climate change poses to our economies, and to the fantastic opportunities.” This transition to a more sustainable model is, he said, “the biggest investment opportunity in the history of the world”.

The more investors recognise the potential to generate outperformance from this transition, the more likely we are to address climate change with the pace and urgency it deserves.

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