As well as being the greatest long-term threat to the planet, climate change presents huge risks to investment portfolios. Here, we explain why being passive against these risks is not an option.
Global warming is the greatest challenge of the modern world. Under current global emissions trajectories, the planet is on track for approximately 3°C of warming by 2100—a path expected to result in temperatures not seen in three million years.
This degree of heating will exact a staggering toll on global economic output. Oxford Economics projects its impacts could suppress global GDP by 20 per cent, and in some developing countries by as much as 90 per cent.1 McKinsey forecasts that 2°C of warming by 2050 would trigger lethal heatwaves in Asia, impacting labour and costing the region between seven and 13 per cent of GDP.2
The 2015 Paris Agreement was supposed to mark an historic turning point for combating climate change, setting forth ambitious limits on global temperature increases. But to stay within these limits, countries must set equally ambitious global greenhouse gas (GHG) emissions targets—aligning with these pathways requires unprecedented and urgent change.
The change needed to transition to a low-carbon and climate- resilient world will impact every company around the globe. While for some companies the impact is clear, for others it is less apparent. As such, we believe that financial markets are not efficiently pricing the move towards decarbonisation—or the phasing out of fossil fuels—nor are they reflecting the physical risks from climate change. This underscores the importance of taking an active approach to identifying those companies that are best orientating their business models for a lower carbon, warmer world—and mitigating the associated risks.
Rick Stathers, Climate Specialist, Senior Global Responsible Investment Analyst, Aviva Investors
Steve Venton, Investment Director, Equities, responsible for global equity strategies, Aviva Investors
Please find the reports in English and German.
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