The calls for climate action are unavoidable. But what does it mean for investors?

nicolas

Iancu Daramus

30 Oct 2019

From Greta Thunberg’s impassioned plea to the UN to the climate strikes I attended here in London, the public demand for action on climate change is here to stay. Here’s what it could mean for investors.

Double, double oil and trouble

Public pressure comes on top of mounting market pressures, as the falling costs of clean technologies – solar and wind power, batteries and electric vehicles – begin to challenge the established fossil-fuel-based system.

This only increases the chance of politicians taking further, stronger action to put the world economy on a low-carbon diet. The head of the Organisation of the Petroleum Exporting Countries (OPEC) recently described the surge in climate awareness as ‘perhaps the greatest threat to our industry’.

Even our own research shows that – for the oil industry – there is now an immense amount of uncertainty about the industry’s future if we are to meet the below two degree warming target set out by the Paris Agreement.

 

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And as the financial consequences of meeting (or missing) climate targets become clearer for businesses, the pressure will not just come from the streets. The UK’s financial regulators have already put out a joint statement saying they are monitoring firms’ response to climate change, and an environmental law firm has put large pension schemes on notice over climate risk.

Do you know where your pension is invested?

Many people don’t realise that one of the most powerful ways that they can take the fight to these companies is through their pension.

When I was at the climate protests in September I met an array of people from retirees and schoolchildren, private-sector entrepreneurs to public-sector union members. Many of those I spoke to had been thinking about their personal actions can be more climate-friendly. Few, though, had given as much thought to their role as investors.

I spoke to a renewable energy engineer, who admitted she had never considered the possibility that her own pension might be propping up the coal plants that, in her day job, she was trying to render obsolete.

Another engineer had attempted to change his pension to a more environmentally friendly option, but had eventually given up because the process wasn’t user friendly.

Elsewhere on this blog we’ve written about how selling out of all the oil companies could mean that they have a licence to act as they have before – instead, just own less of them and make them change their ways! When investors expect more from the companies they hold, the better we can all drive change.

Rising seas and turning tides

Many firms are already changing their ways in the face of such pressure from Legal & General and other investors.

The world’s largest container shipping company is pledging to make all its operations carbon neutral.

And the world’s largest mining company and second-largest oil and gas company have both announced plans to reduce emissions not just from their operations, but also from their products – the fossil fuels that are burned in cars, power plants and steel mills around the world.

Rebellions are built on hope

When four million people are taking part in climate strikes calling for action, the world of business and finance – and therefore investors – needs to take notice. It’s time to face the climate emergency.

Risk warning

Please remember the value of your investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest . Tax rules for ISAs may change in the future and their tax advantages depend on your individual circumstances.

Please note the information, data and any references in this article were accurate at the time of writing. Please check the date of the content if you’re looking for up to date investment commentary or tax-year related information.