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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.

Above Video: Investing For A Low-Carbon Future

ESG credentials are crucial

Some sectors and stocks will be severely affected, leaving investors with significant exposure to carbon risk. Climate change investment is about finding ways to decarbonise your portfolio to align with a low-carbon future. Taking decisions with this in mind can therefore help you address climate risk in your portfolio.

On the other hand, companies that anticipate and react to these changes may find themselves well placed to weather the disruption. Analysing a company's environmental, social and governance (ESG) credentials will become an increasingly important tool for investors to work out which companies are best placed to adapt to a low-carbon future.

Change will bring green opportunity

Investing with climate change and a low-carbon economy in mind is part of managing the material risk to your portfolio. However, climate change investment can also be a useful lens for looking for new opportunities in up-and-coming sectors. Investors who seek to decarbonise their portfolio will likely find opportunities for low-carbon investing in new industries. Technology that addresses climate change, like green energy and sustainable transport, is likely to profit as investors look for options that remove carbon from the world.

Finally, investors can look to the rise of responsible consumerism for a different angle on climate change investment. Companies that offer environmentally friendly products, as well as those that control costs by proactively removing carbon from their supply chain, are likely to do well in a low-carbon economy.


Credit Suisse's latest whitepaper, The Decarbonizing Portfolio, explains in depth why investor portfolios need to be ready for the inevitable shift to a low-carbon economy. The paper's research outlines various types of sustainable and impact investing approaches that can help investors prepare. Download the report.

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