Climate change is breaking into the mainstream of thinking by some of the world's top investors. A big shift is coming.
BlackRock, the huge investment firm, takes a clever approach in a compelling recent report on how climate change is about to cause major challenges for investors.
It doesn’t take an outright stand on climate, thus not alienating those who don’t believe in the mainstream scientific consensus that it is real, largely human caused and getting worse. It does lay out the science. But believe it or not, climate change and responses to it will affect the investment climate of the future.
The report notes, “Global business and policy leaders take climate change seriously. Extreme weather, natural catastrophes and failure of climate change adaptation ranked among the top 10 global risks in terms of likelihood” this year, according to a survey of 900 members by the World Economic Forum. (The Pentagon is taking it seriously, too).
With pressure growing on governments to lower emissions of greenhouse gases and the possibility of real action out of next month’s Paris summit, the calculus of profiting from legacy fossil fuel companies is changing. They may make less attractive investments. But there’s plenty of opportunity, too. And uncertainty. Also, the insurance industry faces huge risk from major weather events.
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“Greater transparency on climate risks and exposures will likely lead to a gradual discounting of companies and assets exposed to climate risk – and increase the value of those most resilient to these risks,” the report states. “Some asset owners are already divesting from carbon-intensive equities, while others are ‘hedging’ their carbon exposure by investing in renewables, energy efficiency and clean tech. It can be costly to underestimate environmental risks…”
It’s worth a read. You can read and download the entire report here.
Today’s Econ Haiku:
About stock buybacks
About selling the future
About time to stop