A new study launched today warns investors against building portfolios based on fossil fuel investments and highlights the need for stable long-term climate policies.
The study – Investing in a Time of Climate Change – was prepared by global investment consultants Mercer in conjunction with WWF, the Investor Group on Climate Change and a range of financial management firms.
It delivers clear advice to investors on how to manage the risks and opportunities of global warming on their investment portfolios, and models a range of climate change scenarios and their consequences for investors.
“This new report highlights the importance of taking strong action on global warming for the benefit of investment portfolios, as well as our environment,” said WWF-Australia’s Policy Manager - Climate Change Adrian Enright.
“The upcoming announcement of Australia’s pollution reduction targets is an opportunity for the government to take the kind of strong action investors require, while also meeting our international commitment to keep global warming below two degrees Celsius.”
The report flags Australia as one of a few countries where ‘policy risk’ is negatively impacting upon investor decision-making.
Australian equities are shown to be particularly sensitive to a climate policy shock. This is due to the significant degree of uncertainty in recent years and regressive climate change measures.
Chief Executive of the Investor Group on Climate Change Nathan Fabian said investors could no longer assume that growth will continue to be based on an energy sector reliant on fossil fuels.
“There is no choice for investors but to deeply understand the changes in the climate and markets that has commenced and to position portfolios appropriately,” Mr Fabian said.
“The role of government is to support a steady economic transition with transparent and predictable long-term policies, something Australia is yet to achieve.”
The study models the impact on returns for portfolios, asset classes, and sectors under four global warming scenarios (2˚C, 3˚C and two 4˚C) and four climate risk factors between 2015 and 2050.
It shows that a two-degree warming scenario – involving a swift transition to a low-carbon economy – would have the softest impacts on investment returns compared to scenarios of three degrees and over.
“A two-degree warming scenario is not only the most favourable for investment returns but also provides exciting opportunities to invest in a cleaner and more sustainable economy that can enhance Australia’s international competitiveness,” Mr Enright said.
The failure of economies to adapt to climate change is among the top five risks globally, according to this year’s report from the World Economic Forum, which ranks the risks of highest concern to the Forum’s 900 global stakeholders.
WWF-Australia Media Contact:
Charlie Stevens, Senior Communications Officer