Will climate change affect portfolios?

Climate change is leading to increased number of natural disasters around the world, such as consecutive draughts in Australia or devastating fires in California that are obvious examples of how costly the impact can be. Locally, we have seen Grancorp's share price adjust significantly because of the draughts and the uncertainty around the frequency of these events. If there is one thing that markets don't like is uncertainty. In order to reduce this uncertainty, industry professionals are increasingly relying on corporate Environmental, Social and Corporate Governance data to make more informed decisions when allocating capital.

Climate change is affecting many industries and businesses, especially Insurers, Energy providers and distributors, Agriculture, Commercial fishing and so on, and current stock valuations don't fully incorporate these risks, as it is difficult to quantify these risks due to lack of sufficient historical data. Incorporating businesses' environmental, social and corporate governance(ESG) factors is not only good for the planet, it can also help align one's wealth to their personal values, and importantly help grow wealth; according to Responsible Investment Association of Australasia, as at 31/12/18, fund managers that invest responsibly/ESG have outperformed their non-ESG peers, so it makes an investment sense.

Moreover, investing into companies that consider their footprint on the environment and the society can help reduce some risk as these businesses tend to stay out of trouble from regulators, while those businesses that don't tend to attract more fines and carry a bad reputation, which is bad for business. There has been a structural shift towards more "green" products due to a growing demand and the businesses that have not evolved accordingly, may find themselves losing customers or worse, out of business. One clear example is fossil fuel diggers - digging these commodities out of the ground is becoming more resource intensive, thus more expensive, as there is less of it available and it is bad for the planet, so there will be a structural decline in their revenues(it may take some time though)

Fortunately, we have access to a tool that allows us to access the most comprehensive ESG data on companies around the world to help clients make more informed decisions when investing.

Regards,

Shaun Rasulov, B.Comm, Adv. Dip Fin Pl

Wealth Adviser | Authorised Representative: 000467018

 Level 2, Tower B, The Zenith, 821 Pacific Highway Chatswood NSW 2067

West Chatswood Post Shop, PO Box 5014 Chatswood NSW 1515

Email: [email protected]

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Disclaimer & Warning: General Advice Only. Clients are advised to discuss with the author the appropriateness of each recommendation, together with the general and specific risks of investing having regard to personal financial needs, objectives and financial circumstances.