Climate change investment has a growing profile. Investors face risks as the world transitions to a low-carbon future. But a greener economy will also bring opportunities. In response, investors need to think about how low-carbon investing can help them prepare their portfolios
It is a crucial time to explore the idea of climate change investment. Investing in response to climate change means thinking about what a low-carbon future will mean for your portfolio. Then, you can align your portfolio in anticipation of the major shifts in the economy to come.
Climate change investment: pinpointing risk
Climate change investment approaches can help investors assess their risk exposure. Investors are likely to face two broad sets of risks when it comes to their portfolio.
Firstly, there is likely to be disruption caused by the changing business environment. As governments and the public demand action on climate change and energy transition, companies are likely to face new regulation. Technological innovation will overtake old industries and costs will rise as climate risk is priced into supply chains. Additionally, some industries may find themselves holding so-called "stranded assets" that are worth less than expected amid the transition to a low-carbon economy.
Secondly, there is the risk of climate change itself to investments. This means considering what global warming, extreme weather and rising sea levels mean to a company's ability to sustain their business model in the long term.