Download The investment implications of global warming

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TWO DEGREES OF CHANGE
The investment implications
of global warming
By Victoria Barron, Responsible Investment analyst
The conversation about climate change is evolving fast and sometimes emanating from unexpected places.
Statoil CEO Eldar Sætre said last year that “a continued parallel increase in CO2 emissions as a result of this prosperity is
not sustainable in the long term. Without a change of course, everyone will lose, including the oil and gas industry”.1
Change is possible; we saw that at the
COP (Conference of Parties) 21 Paris
Climate Conference when France’s Foreign
Affairs Minister, Laurent Fabius, brought
two weeks of intense negotiations to a close.
It was the biggest gathering of nations since
the Second World War. From the
disappointment of the Copenhagen talks
in 2009, participants moved to an agreed
set of four objectives:
COP 21: The four agreed objectives
Despite COP 21’s success, much more work
needs to be done. The current combined
INDC pledges still mean that the 2°C limit
will be exceeded and reach 2.6-3°C by 2100
and 3.5°C after 2200;4 they are not legally
binding, and no sanctions exist for failure
to deliver on agreed pledges. In addition,
while the annual $100 billion of climate
financing is a huge step in aiding climate
change adaptation and mitigation, the cost
EXHIBIT 1: GLOBAL GREENHOUSE GAS EMISSIONS FOR THREE POTENTIAL COURSES OF ACTON
1 |To stick within a 2°C of warming goal
with a ‘stretch goal’ of 1.5°C
3 |To ratchet up each country’s national
emission reduction plans (Intended
Nationally Determined Contributions
– INDCs) every five years
4|To finance developing countries’
adaptation to climate change with
$100 billion annually to 2020, with a
commitment to further finance in
the future3
Estimated 2100
temperature
increase
150
No action taken
Giga tonnes CO2 per year
2 |To bring about peak emissions ‘as soon
as possible’ and achieve a balance
between carbon sources and sinks
(i.e. carbon neutrality) in the second
half of the century2
out to 2050 of just one developing country
adapting to a 2°C warmer world is
estimated to be in the range of $75 billion
to $100 billion a year.5 This leaves the
majority of responsibility in the hands of
future governments and negotiators. It
won’t be easy; governments, businesses,
investors and society will all have to pull
together to stay within the stated two
degrees of change.
120
4.50C
8.10F
90
Current INDCs
(No continued progress)
60
3.50C
6.30F
30
COP 21 goal
0
2000
2020
2040
2060
2080
2100
2.00C
3.60F
Source: www.climatescoreboard.org
1Source: Statoil, ‘Energy Perspectives 2015: The 2-degree target is possible – with major changes’, 2015: http://www.statoil.com/en/NewsAndMedia/News/2015/Pages/04Jun_Energy_perspectives.aspx
2A source is any process or activity through which a greenhouse gas is released into the atmosphere. A sink is a reservoir that takes up a chemical element or compound from another part of its natural cycle.
3Source: UNFCCC Newsroom, ‘Historic Paris Agreement on Climate Change’, December 2015: http://newsroom.unfccc.int/unfccc-newsroom/finale-cop21/
4 Source: International Energy Agency, ‘Energy and Climate Change’, 2015: https://www.iea.org/publications/freepublications/publication/WEO2015SpecialReportonEnergyandClimateChange.pdf
5Source: World Bank, ‘The Cost to Developing Countries of Adapting to Climate Change’, 2011: http://siteresources.worldbank.org/INTCC/Resources/Executivesummary.pdf
#2Degrees
two degrees of change
from renewable energies
¡ Returns
could increase annually between 4% and 97%
over a 10-year period
annual returns from the coal sub-sector
∞ Average
could fall by between 18% and 74%
over the next 35 years
2
Can we afford to leave this problem
to future generations to solve?
Time is not a luxury we can afford when it
comes to climate change. Global warming is
irreversible, and the window to reduce its
impacts is closing rapidly. The biggest
impacts will be on rainfall patterns, ocean
currents and the length of seasons. The
impacts of these changes will differ between
regions; drought, for example, will become
more common in some regions, while
flooding will increase in others.
The physical impacts of climate change,
through extreme weather events, are
translating into a cost for business.
Consider the $30 billion in losses that
Hurricane Sandy cost in 20126 or the
flooding in the UK in December 2015.
California is still in the midst of a
seven-year long drought, which in 2015
cost the state’s economy $2.7 billion.7
Such physical impacts translate into risks
and costs for investors. Advisers are
beginning to recognise that climate change
risk poses a governance risk for trustees.
For example, investment consultant
Mercer’s ‘Investing in a Time of Climate
Change’ study8 models four different
climate scenarios and the potential impact
on different asset classes. It concludes that
climate change is both an idiosyncratic risk
factor that investors must consider, and a
governance risk that trustees need to
evaluate as part of their fiduciary duties.
At Newton, we have also carried out
internal research to look at the COP 21
policy implications for investors and the
physical impacts of climate change on our
sovereign bond assets. The conclusions
were numerous.
On the other hand, depending on certain
policy and technology scenarios, returns
from renewable energies could increase
annually between 4% and 97% over a
10-year period, demonstrating how
drastically the numbers can vary.11
The physical impacts of climate change, through extreme
weather events, are translating into a cost for business.
Such physical impacts translate into risks and costs
for investors.
Like many other ‘macro’ issues, determining
when and how climate change will affect an
asset portfolio is not clear-cut. Economic
estimates vary drastically, and physical impacts
differ in materiality, scale and timing. In The
Economics of Climate Change, Lord Stern
concluded that, if no action is taken on climate
change, the overall costs will be equivalent to
at least 5% of annual global gross domestic
product ‘now and forever’.9 Recent Economist
Unit research estimates that much of the
future impact on assets will come through
weaker growth and lower asset returns.10
It is also clear that, amid uncertainty,
stock-specific analysis is fundamental;
no two companies are identical; even in
the same location, where one business’s
operations are sound, another’s can be on
the brink of ruining future prospects.
Furthermore, companies, markets and
investors are not appropriately capturing
the interconnected risk, which once more
creates a need for detailed analysis.
Most starkly, at a sector level, Mercer’s
climate research estimates that average
annual returns from the coal sub-sector
could fall by between 18% and 74% over
the next 35 years, which may provide one
of the reasons why some investors have
actively decided to divest from coal.
If no action is taken on
climate change, the overall
costs will be equivalent to
at least 5% of annual global
GDP ‘now and forever’9
Any reference to a specific security, country or sector should not be construed as a
recommendation to buy or sell this security, country or sector.
6Source: Ceres, ‘Cool Response: SEC Climate Guidance & S&P 500 Reporting – 2010 to 2013’, February 2014: http://www.ceres.org/resources/reports/cool-response-the-sec-corporate-climate-change-reporting
7Source: USA Today, ‘California drought cost is 2.7 billion in 2015’, August 2015: http://www.usatoday.com/story/weather/2015/08/19/california-drought-cost-27-billion-2015/32007967/
8Source: Mercer, ‘Investing in a Time of Climate Change’, June 2015: http://www.mercer.com/services/investments/investment-opportunities/responsible-investment/investing-in-a-time-of-climate-change-report-2015.html
9Source: HM Treasury Archive ‘STERN REVIEW: The Economics of Climate Change’, October 2006: http://webarchive.nationalarchives.gov.uk/20130129110402/http://www.hm-treasury.gov.uk/d/Executive_Summary.pdf
10S ource: The Economist Intelligence Unit, ‘The cost of inaction: Recognising the value at risk from climate change’, July 2015: http://www.economistinsights.com/sites/default/files/The%20cost%20of%20inaction.pdf
11Please see footnote 8.
two degrees of change
Our themes are built upon
fundamental, observable trends,
rather than speculative or
short-run forecasts to identify
ways in which global warming
can have an impact on our
clients’ investments.
Policymakers see sustainable
growth as requiring more economic
intervention, market manipulation
and regulation. We believe this has
led to increased volatility, inflated
asset prices and poor capital
allocation.
The world has made the transition
from connecting places (landline
phones), to connecting people
(mobile phones), to connecting
devices (satellite navigation).
The rapid rise in the ‘internet of
things’ is transforming lifestyles
and traditional business
practices globally.
As evidence has mounted of the
negative impact of modern activity
on the environment, a consensus
has emerged around investment
in ‘green’ technology.
3
Making sense amid the noise
The scale of the challenge presented by
climate change is significant, and there is
considerable uncertainty in forecasting
how it unfolds.
Blocking out the ‘noise’
that drives financial markets’
day-to-day gyrations is
essential to long-term
investing
John Maynard Keynes made a distinction
between risk and uncertainty. Risk is when
probabilities can be known (measured);
uncertainty exists when they cannot be
known (or measured). Climate change presents
risks which are already being observed and,
while there is uncertainty as to how it will
evolve in the future, it is not unlike many
other macro risks currently facing investors.
Therefore, we can already begin to break
down the high-level hazards in a more
manageable and measureable way to identify
potential investment risks and opportunities.
At Newton, our investment approach is
grounded in the belief that blocking out
the ‘noise’ that drives financial markets’
day-to-day gyrations is essential to
long-term investing. We aim to achieve
perspective via a range of global themes,
which represent our convictions about
likely forces of change in the world.
Our themes are built upon fundamental,
observable trends, rather than speculative
or short-run forecasts. In thinking about
climate change thematically, we use themes
such as state intervention, Earth matters and
technology-related net effects to identify
three interconnected ways in which global
warming can have an impact on our
clients’ investments:
1 |Policy and regulation
Regulation will lead to more controlled
markets, and to further mechanisms
such as carbon trading/pricing schemes
and minimum emissions standards.
This, in turn, will lead to greater
compliance and monitoring costs.
2 |Costs
Indirect costs arising from extreme
weather damage to assets, supply chains,
workforces and, more broadly,
stakeholder relations, will affect
investment returns.
3 |Disruption/technological innovation
New market technologies or adapted
old technologies will force incumbent
business models to adapt or fail, and
unexpected disruptors may intervene
in their absence.
Investors will need to think carefully about
how to invest their capital in a world of
climate change in order to capture new
opportunities and avoid their capital being
allocated to assets whose value may be
impaired or ‘stranded’ in the future.
Policy and regulation
Climate change regulation is designed to
punish heavy emitters, either by levying a
charge on emissions or by incentivising
competition and encouraging adaptive
solutions, such as energy-efficient products
or building insulation. While policy has
advanced, most notably in the European
Union (EU), and although emissions in
developed economies have fallen sharply
owing to the economic slowdown since
2008, many governments in emerging
markets face the challenge of managing
growth versus emissions.
Almost one fifth of the world’s population
lacks access to power,12 and over the next
25 years it is estimated that close to
$200 trillion will be spent on energy
capital expenditure and fuel to reduce
global poverty.13 However, poverty
reduction comes at a high cost to the
climate as the world relies almost entirely
on fossil-fuel energy.
The energy sector contributes to two thirds
of global greenhouse gas emissions, and
most power generation relies on coal, which
is cheap but is also the most polluting form
of energy and has stark impacts on health.
The complex interaction between economic
prosperity, poverty alleviation and public
health is most obvious in China, where
years of smog have led to civil unrest,
prompting the government to declare a
‘war on pollution’.14
Your capital may be at risk. The value of investments and the income from them can fall as well
as rise and investors may not get back the original amount invested.
12S ource: International Energy Agency, Energy access database, 2015: http://www.worldenergyoutlook.org/resources/energydevelopment/energyaccessdatabase/
13 Source: Climate Observer, ‘Energy Darwinism II. Why a Low Carbon Future Doesn’t Have to Cost the Earth’, August 2015: http://climateobserver.org/reports/energy-darwinism-citi-report/
14Source: Reuters, ‘China to declare war on pollution, premier says’, March 2014: http://www.reuters.com/article/us-china-parliament-pollution-idUSBREA2405W20140305
two degrees of change
4
Policy can be used to reallocate or
introduce new subsidies and, while the cost
of these subsidies may be high, they remain
popular (along with pro-environmental
regulation). For example, in the UK, the
‘2015 Public Attitudes Tracking Survey’,
published by the Department of Energy
and Climate Change, showed that 76% of
the British public support renewables.15
Similar support is being expressed in other
regions and countries, particularly as
households try to cut bills by installing
off-grid energy generation.
In the face of businesses
delaying taking action,
there are important
questions around where
to invest.
While public support for renewable subsidies
appears high, business is markedly more
sceptical as to whether there is sufficient
long-term political will to tackle emissions
adequately. For example, current CO2
prices, where market-based trading schemes
exist, are too low to have a significant
impact on emission reductions, and only
tackle the worst emitters. Furthermore,
changes in political office often result in
short-term changes in operating realities.
In this environment, companies continue
business as usual, but we believe that, over
the medium to long term, carbon regulation
will strengthen. The world’s largest emitters
have already made noteworthy pledges: the
EU has committed to cutting carbon
emissions by 40% from 1990 levels, and the
US plans to cut emissions by 26% from
2005 levels, while China is determined to
pass peak emissions before 2030, and India
plans to increase solar energy generation to
100GW (from an original target of 20GW).16
In addition, while the COP 21 submissions
are not yet ambitious enough to keep the
world to 2°C of warming, and further work
is needed at future negotiations to iron out
policy details and ramp up ambitions, it is
already clear which sectors are set to suffer
or benefit from regulatory compliance.
In the face of businesses delaying taking
action, there are important questions
around where to invest. 19% of FTSE 100
companies are in natural resources and
extractive industries, and a further 11% are
in utilities, chemicals, construction and
industrial goods sectors. Globally, these
industrial sectors account for around one
third of equity and fixed income assets.17
In today’s low-income world, these mature,
high-dividend industries are delivering
much-needed returns to investors.
19%
of FTSE 100 companies
are in natural resources and
extractive industries
11%
of FTSE 100 companies
are in utilities, chemicals,
construction and
industrial goods sectors
Globally
these industrial sectors
account for around one third
of equity
and fixed income assets17
However, for the long term, heavy emitters
need to make investment decisions today,
to ensure they do not suffer from increased
costs on inefficient operations, as a result
of inevitable policy change.
15S ource: Renewable UK press release, ‘Public support for renewable energy stays sky-high – official opinion poll’, November 2015:
http://www.renewableuk.com/en/news/press-releases.cfm/10-11-2015-public-support-for-renewable-energy-stays-sky-high-official-opinion-poll
16S ource: The Guardian, ‘United States and China reach landmark carbon emissions deal – as it happened’, November 2014:
http://www.theguardian.com/environment/live/2014/nov/12/united-states-and-china-reach-landmark-carbon-emissions-deal-live
17S ource: Bank of England, ‘Breaking the tragedy of the horizon – climate change and financial stability’ – speech by Mark Carney, September 2015: http://www.bankofengland.co.uk/publications/Pages/speeches/2015/844.aspx
two degrees of change
5
Cost
The costs associated with the physical impacts of climate change are very visible today – whether the $30 billion in insured losses from
Hurricane Sandy in 201218 or the UK floods in 2013 and 2015. While some companies are starting to take note, more needs to be done to
capture the interconnected risks facing businesses in these instances. This is particularly important when the physical impacts affect local
stakeholders, leading to strong policy reaction which can leave companies handling the knock-on costs of compliance. While these costs
can sometimes be passed on to consumers, companies’ licences to operate are invariably called into question.
Take examples from California and Chile:
Chile
Chile is the world’s largest copper
producer and, following eight
years of drought (the result of
even more extreme swings in
El Niño and La Niña), 21 miners,
farmers and foresters are
struggling to obtain sufficient
water for their operational
requirements.
California
Despite leading global agricultural
practices, California declared a
drought emergency in 2015 and
launched mandatory water
conservation for cities and towns,
following five years of drought
owing to unfavourable El Niño
movements.19
Previously, there had been no
restrictions on water extraction
from underground aquifers, and
it was reported that farmers were
pumping water at a rate four to
five times greater than the rate at
which water supplies were being
replenished. In 2014, it was
estimated that water and other
drought-related expenses had
cost farmers $2 billion. 20
Yet, despite these costs, almond
farmers experienced record sales
thanks to booming international
demand. Tensions between
farmers and local stakeholders,
however, have become very high,
and farms’ licences to operate
are being called into question.
Despite most industrial farms
using cutting-edge irrigation
technology and the state taking
as much policy action as it can,
local residents continue to
experience water access issues,
raising genuine concerns about
California’s future water scarcity
and agricultural sector.
The effects of water shortages,
thanks to the depletion of the
Andean snowmelt, have also
been exacerbated by the country’s
rapid economic growth over the
last decade.Chilean power prices
are the highest in Latin America,
and companies are feeling the
effects on production; Anglo
American’s CEO stated in Q4
2013 that the company’s Los
Broncos copper mine lost
30,000 tonnes of copper output,
partly because of drought.
Tensions with local stakeholders
have also grown, particularly
where a mine is situated close
to agricultural production. The
government has responded with
a proposed bill that would force
mining companies to operate
all of their copper mines using
desalinated water.
While some international
companies have the necessary
facilities to deal with this, like
BHP Billiton, who in 2014 invested
$3.4 billion in a desalination plant
with Rio Tinto,22 it does not detract
from the fact that the cost of
running a desalination plant can
be at least four times greater than
that of using fresh water, owing to
the higher energy requirements
and distance of most projects
from the coast. 23
While the international players
can at present afford to deal with
these climatic change effects,
once more the future operational
viability of this long-term industry
is in question.
Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell this security, country or sector.
18Source: Please see footnote 6.
19El Niño events are associated with a warming of the central and eastern tropical Pacific, while La Niña events are the reverse, with a sustained cooling of these same areas.
Source: US Davis Center for Watershed Sciences, ERA Economics and UC Agricultural Issues Center, ‘Economic Analysis of the 2015 Drought for California Agriculture’, August 2015:
https://watershed.ucdavis.edu/files/biblio/Final_Drought%20Report_08182015_Full_Report_WithAppendices.pdf
20Ibid
21 Ibid
22 Source: Bloomberg, ‘Chile’s Water Shortage Threatens Wines and Mines’, March 2015: http://www.bloomberg.com/news/articles/2015-03-10/wines-to-mines-imperiled-as-chile-fights-california-like-drought
23S ource: Ecohearth, ‘Is Desalination the Answer to Global Water Shortages?’, December 2013: http://ecohearth.com/eco-zine/science-and-technology/1522-is-desalination-the-answer-to-global-water-shortages.html
two degrees of change
Disruptive technologies: a brief history
Enterprise
P2P File-sharing
Open Source Software
Linux
Instant Messaging
Gigabit Ethernet
Internet
2000
Video Content Distribution
Google Docs
Web CMS
SAP ERP
ADSL
Compact Disks
Personal Computers
Online Gaming
Wikipedia
Wireless Internet
Skype
Consumer
Search Engines
6
Open APIs
VoIP
BT 21CN
RFID
USB Drive
Digital Cameras
Facebook
Mobile Apps
Virtualisation
Green IT
Google Analytics
Electric Vehicles
Social Media
Smartphones
Mobile Web
Plasma/LCD
Source: Capgemini, Disruptive Technology Timeline: https://www.capgemini.com/sites/default/files/en/2015/06/disruptive_technology_timeline.jpg
Disruptive technologies
Until the 20th century, the horse and
carriage was the primary mode of
transportation, but the system was inefficient:
travelling took a long time, horses needed to
be changed for long journeys, and manure
caused pollution and health problems in
cities. With the advent of steam and the
automobile, an entire industry and its supply
chain fell into decline, and ultimately
disappeared as a means of transportation.
Today’s fossil-fuel based energy system is
perhaps the modern equivalent of the horse
and carriage: it delivers global energy
relatively cheaply, but it is inefficient. For
example, about two-thirds of fuel energy is
lost in an internal combustion engine, while
electric cars only lose 10-20% (with virtually
no adverse impact on public health).24
Renewable energies offer part of the solution.
Over the next two decades, investment in
renewables is forecast to triple to $700 billion.
By 2040, renewables should amount to at
least 30% of global electricity generation.25
In 2014, renewable energy generation
contributed to 9.1% of world electricity
generation, compared to 8.5% in 2013.26
Globally strong subsidy support for
renewable technologies is sending a clear
message that renewables will continue to be
supported in the future, but many utilities
and fossil-fuel companies continue to
underinvest, citing short-term policy
uncertainty. While on one hand this is
deeply concerning, in the short term it is
also understandable given the nature of
their long-term assets.
EXHIBIT 2: THE 20C SCENARIO – HOW MIGHT GLOBAL ENERGY USE CHANGE IN THE FUTURE?
13.5%
29.0%
16.6%
29.8%
4.8%
20.7%
2040
2012
20C Scenario
21.3%
10.7%
31.4%
Total energy use:
13,361 Mtoe*
22.2%
Total energy use:
15,629 Mtoe*
�Coal �Oil �Gas �Nuclear �Renewables
Source: World Energy Outlook 2014. *Million tonnes of oil equivalent.
24S ource: The National Academies, ‘What you need to know about energy’, 2016: http://www.nap.edu/reports/energy/sources.html
25S ource: Carbon Brief, ‘Two degrees: Will we avoid dangerous climate change?’, September 2014:
http://www.carbonbrief.org/two-degrees-will-we-avoid-dangerous-climate-change
26S ource: Frankfurt School, FS-UNEP Collaborating Centre for Climate & Sustainable Energy Finance, ‘Global Trends in Renewable Energy Investment 2015’:
2015: http://fs-unep-centre.org/publications/global-trends-renewable-energy-investment-2015
27Please see footnote 1.
28S ource: The RE 100: http://there100.org/companies
Take the strategy of companies like
Drax Plc, once the UK’s poster child for
‘dirty coal’, but now a co-fired coal and
biomass energy provider, which has long
been at the behest of changing UK energy
policy. Other incumbents have decided to
respond in a different manner, separating
clean energy from dirty energy, and hoping
this approach will weather future policy
changes. For example, in 2016, E.ON spun
off its hydro, natural gas and coal business
into a separate business in response to
Germany’s changing energy strategy. Its
future focus is on renewables, energy
networks and customer solutions.
Climate-change messages are also emanating
from unlikely sources. Statoil’s CEO stated
in the company’s 2015 Energy Perspectives
that “a continued parallel increase in CO2
emissions... is not sustainable in the long term.
Without a change of course, everyone will
lose, including the oil and gas industry”.27
Where incumbents are not reacting quickly
enough or policy is blocking movement,
disruptors are beginning to step into the
void to capture the future benefits of cost
savings, create market opportunities and
advance new technologies. 56 companies
operating in the UK signed RE100, a
global initiative engaging, supporting and
showcasing companies committed to
using 100% renewable energy.28
Any reference to a specific security, country
or sector should not be construed as a
recommendation to buy or sell this security,
country or sector.
two degrees of change
Cloud
Enterprise Service Bus
Internet of Things
Data Analytics
DevOps
Microservices
Software Defined Networks
salesforce.com
BYOD
Box
Infrastructure is Code
Bitcoin
eBooks
Spotify
HD Display
4G
Dropbox
Tablets
Renewable Energy
Biometrics
Nanotechnology
Biomedicine
Artificial Intelligence
Robotics
Digital Society
Digital Enterprise
Big Data
Immutable Infrastructure
2020
Digital Currency
Autonomous Vehicles
Virtual Reality
Wearable Technology
Uber
Mobile Banking
Micro Payments
5G
7
The need for active investment in world with climate change
Other companies are seeking to benefit
through combinations of innovation.
Exciting examples are Apple, 93% of
whose global operations are now running
on renewable energy, Google, which has
committed to invest $2.5 billion in
renewable energy27 and Tesla, an electric
car and battery manufacturer, which is
challenging the automotive and energy
industries through its production of
electronic vehicles, batteries and
solar energy.
In a world where the biggest operator
of hotel rooms, Airbnb, does not own any
rooms,28 one can begin to understand how
quickly disruptors can challenge and,
ultimately, displace longstanding business
models. Given the rate of investment that
is needed to advance new technologies,
innovative technology will not suit every
investor’s risk appetite. However, there
will be disruptors and innovators who
will provide solutions that are
unachievable by current manufacturers,
and there will be winners who will unlock
stores of future investment returns. For
investors thinking about the move to a
low-carbon economy, the challenge is to
identify the incumbents that can adapt
and thrive in such an economy.
While we must acknowledge that
policymaking success alone – most notably
the success of COP 21 – will not be
sufficient to keep global warming to two
degrees, there has been progress made on
setting global emission reduction
commitments. 195 countries have outlined
their policy plans, and sectors already in
the firing line are unlikely to escape in the
future. Not all incumbents are responding
in the same way, but analysis of potential
winners is made easier when stocks are
analysed on an individual basis.
Where climate change
becomes an ever-present
reality, ‘business as usual’
and ‘investment as usual’
will no longer suffice.
Currently, the indirect costs of climate
change on businesses are not being
adequately captured by companies, markets
or investors. This highlights the need for
further investment analysis – looking in
detail at companies’ physical and
interconnected risks, and at where they
may win or lose in the market.
While disruptive technologies are
developing fast, not all of them will
succeed. The majority of incumbents are
still reticent about making strong
investment moves, and in their place
disruptors are stepping into the breach.
Here, rigorous analysis will be vital to
determine, at asset class and stock selection
level, if investors are being rewarded for
investing in untried technologies and
whether investment opportunities are
consistent with risk appetites.
In a low-income world of swinging oil
prices, unstable geopolitics and extreme
monetary intervention, it is easy to dismiss
global warming as too complex or too
long-term to address today. However,
investors are no strangers to dealing with
complex risks. Where climate change
becomes an ever-present reality, ‘business
as usual’ and ‘investment as usual’ will
no longer suffice.
For these reasons, we believe that active
investment plays a crucial role in identifying
these future risks and opportunities for
investors. We do not claim to have all the
answers, and we are travelling with the rest
of the investment community to an
unknown destination. But we do have
obvious markers to guide us, the overall
direction is clear, and we believe the time
for a new investment approach is now.
Your capital may be at risk. The value of investments and the income from them can fall as well as rise and
investors may not get back the original amount invested. Any reference to a specific security, country or sector
should not be construed as a recommendation to buy or sell this security, country or sector.
27S ource: Google green: https://www.google.co.uk/green/energy/
28S ource: The Independent, ‘Facebook, Airbnb, Uber, and the unstoppable rise of the content non-generators’, May 2015:
http://www.independent.co.uk/news/business/comment/hamish-mcrae/facebook-airbnb-uber-and-the-unstoppable-rise-of-the-content-non-generators-10227207.html
two degrees of change
Want to find out more?
Please contact us should you wish to discuss any of the topics
covered in this paper.
Charity investors
Institutional investors
Stephanie Gore
[email protected]
020 7163 6377
Julian Lyne
[email protected]
020 7163 4234
Important information: This document is for UK retail and professional investors only. The opinions expressed in this document are those of Newton
and should not be construed as investment advice or any other advice and are subject to change. This document is for information purposes only and
does not constitute an offer or solicitation to invest. Issued in the UK by Newton Investment Management Limited, The Bank of New York Mellon Centre,
160 Queen Victoria Street, London, EC4V 4LA. Registered in England No. 01371973. Newton Investment Management is authorised and regulated
by the Financial Conduct Authority.
In the UK, this document is issued by:
Newton Investment Management Limited,
The Bank of New York Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA
Tel: 020 7163 9000
Registered in England No. 01371973. Newton Investment Management is authorised and regulated by the Financial Conduct Authority.
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