BlackRock, the world’s largest asset manager with almost $5 trillion (£3.7 trillion) in assets, said that all investors need to factor climate change, and the investment needed to halt it, into their future risk-assessments.
“A tide of new regulations to combat climate change is rising,” BlackRock said in a report. “The risks are underappreciated, yet could soon start to unfold.”
Global leaders put climate change on the G20 agenda on Saturday, when both China and the United States signed on to a plan to curb emissions.
The move is likely to create international laws that could change the way companies, and therefore investors, do business in the future.
“Investors can no longer ignore climate change,” Philip Hildebrand, the firm’s vice-chairman, and Deborah Winshel, head of impact investing, said.
“Some may question the science behind it, but all are faced with a swelling tide of climate-related regulations and technological disruption. We believe all investors should incorporate climate change awareness into their investment processes,” they said.
Current policies won’t be enough to stop the earth warming by at least 3 Celsius by 2100. Even accounting for pledges and agreements between nations, the planet will be more than 2 Celsius hotter on average by the end of the century.
Here is the BlackRock chart:
The changing weather system is becoming more extreme, leading to higher costs associated with climate events. This is becoming a bigger drain on corporate and government resources.
BlackRock has another great chart showing this progression:
Trying to get this under control with energy efficiency initiatives is going to take a huge, coordinated investment from global governments. Even with existing plans, the planet is trillions of dollars behind on the investment it needs to create a sustainable environment.
For an asset manager, this could provide an opportunity to get the kind of yield on investment that has been so sorely lacking since the 2008 financial crisis.
This is what BlackRock says:
“Curbing carbon emissions requires significant spending on green infrastructure and a reduction in fossil fuel subsidies. This creates large investment opportunities in areas that attract capital or industries at risk of disruption.”
And here is the chart:
Meanwhile, how effective a company is at implementing green initiatives is a good way to work out whether it is worth investing in that company. Those businesses that are factoring these changes into their plans already seem to consistently outperform those that do not.
“Our research suggests there can be little downside to gradually incorporating climate factors into the investment process — and even potential upside,” BlackRock said.
And here is that final chart:
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