Climate Week NYC is here

Every end of September, New York City hosts (physically or virtually) the leaders of 193 countries for the annual meeting of the United National General Assembly (UNGA). In addition to the UNGA, this week New York City is hosting?NYC Climate Week , where government and business leaders meet with the objective of accelerating global climate action.

Populous, coastal cities like New York are particularly vulnerable to shifting climate conditions. New York is becoming hotter, wetter, and more at risk. According to data from the?New York City Panel on Climate Change , the city may experience 26-31 days with temperatures above 90 degrees Fahrenheit over the 2020s, compared to the 18 days on average between 1970 and 2000. Rainfall is increasing as well, with six of the ten wettest days on the record in the last 150 years having occurred between 1970 and 2014.

These issues are not limited to New York. According to?research from Princeton University , as sea levels rise, the Eastern and Gulf coasts are likely to see the risk of ‘100-year’ floods increase to once every 30 years. Cities across the world are to be impacted by rising temperatures, with those in Northern US, southern Canada, central and north Asia, the Middle East, Europe and northwestern China likely to experience significantly higher temperatures than the rest of the world by the end of this century, according to?research from the University of Illinois . Given these climate risks, we expect to see divergence between companies that are prepared for the climate transition, and those that are lagging behind.

What this means for investors: opportunities in the race to net zero

All this makes paying attention to the outcomes of the NYC Climate Week, and the global climate summit in November in the UK, important for investors. The climate transition is well underway, as its impacts are already felt across the world. This should continue to benefit companies developing greentech and clean air solutions, ESG leader companies, as well as creating new opportunities in carbon markets.

The ability to put a price on carbon is one key mechanism in some government strategies to hit net-zero targets and encourage sufficient investment in low-emission business models. The European Union’s Emissions Trading System (ETS) was the first cap-and-trade system and is the most liquid. Prices on European carbon recently hit a record high, having rallied almost 85% year-to-date, due to higher energy demand, and anticipation of tighter environmental regulations in the future.

We think that continually lower availability of emission allowances, and an increase in scope of the current system to more sectors should support carbon prices over the medium to long term. Investors, however, should be aware of the potential for short-term price setbacks and the elevated volatility of the carbon prices across disparate markets.

More generally, the implementation of cap-and-trade systems should benefit industries that are more efficient at managing their carbon emissions. Outside of the most emission-intensive industries like the power sector or transportation, companies that are ESG leaders in managing their carbon footprint and climate-related risks and opportunities should benefit from the long-term net zero carbon transition.

Investors have a number of options to participate in these topics, including in fixed income with sustainable bonds. Green, social, sustainability and sustainability-linked bonds make up an investment universe of around USD 1.8tr. Green bonds make up about half of the issued debt in this universe, with the proceeds used to finance projects that provide clear environmental benefits, such as renewable energy, energy efficiency, and sustainable agriculture. Overall, we think the sustainable bond market is able to deliver returns comparable to traditional bonds, but as with traditional credit investing, picking the right names—across developed and emerging markets, and from investment grade to high yield—can also deliver outperformance and provide opportunities to seek “unconventional” yield sources.

Co-authored by Amantia Muhedini, Sustainable and Impact Investing Strategist

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