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Investing in a time of climate change


Opportunity. It’s a word that inspires. Rarely does one read about climate change though in this context. While we need to fully understand and appreciate the massive risks posed by climate change, this report also addresses the important opportunities afforded to forward-thinking investors.

More than 10 years ago, we decided to decarbonise our WWF-UK investment portfolio in the face of mounting and irrefutable evidence of man-made climate change. We are excited about the findings of this report, which support this move and provide us with further insights. Our portfolio, and yours, as the report shows, cannot escape climate change.

Mercer’s recently released report illustrates future opportunities that will come from the fact that our fundamental sources of economic growth are changing dramatically over the next 35 years and beyond. Past drivers of return and portfolio growth may not be the same going forward. New sources of value increasingly include investments in renewable energy, green buildings, and sustainable transport – to name a few specific industry sectors. As the report also states, there will need to be a cumulative investment in energy supply and efficiency of $65 trillion (between 2015-2050) under the transformation scenario.

Notably, there will be significant impact on investor returns, regardless of which climate scenario transpires. For instance, even under the most conservative climate mitigation scenario, the coal sub-sector is expected to be impacted -1.2% per annum and up to -4.9% per annum. On the flip side, renewables are expected to benefit, particularly in the high climate mitigation scenario of up to 3.5% per annum – in terms of impact on investor returns. These are not numbers that any serious investor can ignore and are based on the next 35 years.

Graph showing climate impact on returns by sector © MercerGraph showing climate impact on returns by sector © Mercer

Also, the report shows that investors should be looking underneath the portfolio level into sectors and asset classes. While climate change may not feature prominently at overall portfolio level, this does not mean it does not present large risks as well as sizeable opportunities. It’s a bit like when you look at the ocean surface from the beach – things may look calm out there but tell a vastly different story when you get scuba gear and delve below the surface.

Furthermore, as the stigmatisation of the fossil fuel industry gains momentum (through the divestment movement), one must not take for granted the licence to operate of fossil fuel giants, as it stands today. There is guidance here provided to investors in terms of the concrete steps they can take. Securing long term return cannot be divorced from the environmental and social changes this planet is facing. Flying in the face of the science will, inevitably, cripple you because the investments you make depend on the health of the ecosystems that underpin them.

Finally, unlike what is commonly believed, the transformation scenario does not come at the expense of overall returns at portfolio level. It is not punitive, as the report says, from an investment perspective.

We joined this project to be part of the leading investor discussion on climate change, and to learn if there are new ideas we can inject into our investment portfolio and wider organisational thinking.

Climate change does in fact change everything

So, we are trying to be a ‘future maker’ – but we cannot do this alone – it takes a chorus of courageous voices to make our collective future.

Will you join us? Well, as this report shows, you can afford to.

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