User Register / Login

BlackRock – Adapting Portfolios To Climate Change: Implications & Strategies For All Investors

November 02, 2016 |


Investors can no longer ignore climate change. Regardless of their stance on the science, all are faced with a swelling tide of climate-related regulations and technological disruption. We show how to mitigate climate risks, exploit opportunities or have a positive impact.

“We start by detailing how climate change presents market risks and opportunities through four channels:

  1. Physical: more frequent and severe weather events over the long term;
  2. Technological: advances in energy storage, electric vehicles (EVs) or energy efficiency undermining existing business models;
  3. Regulatory: tightening emissions and energy efficiency standards, and changing subsidies and taxes;
  4. Social: changing consumer preferences and pressure groups advocating divestment of fossil fuel assets.
  • These factors can play out immediately (often the regulatory variety), in the medium term as economies transition to a lower-carbon world (often technological), and in the long run (often physical). Investor time horizons differ as well — and may require different approaches. The longer an asset owner’s time horizon, the more climate-related risks compound. Yet even short-term investors can be affected by regulatory and policy developments, the effect of rapid technological change or an extreme weather event.
  • We then show how all asset owners can — and should — take advantage of a growing array of climate related investment tools and strategies to manage risk, to seek excess returns or improve their market exposure. We explain how investors can gradually implement climate considerations into their portfolios and illustrate the complexities of a one-time portfolio makeover.
  • We end by detailing what many see as the most cost-effective way for governments to meet emissions reduction targets: policy frameworks that result in realistic carbon pricing. These could address a market failure as current fossil fuel prices arguably do not reflect the true costs of their extraction and use. Higher carbon prices could minimize the economic costs of reducing emissions, incentivize companies to innovate and help investors quantify climate factors. We see them as a scenario investors should prepare for.

Download the report here.

Benefit from the Coalition’s unique overview of the capitals approach and community, gain insights into the latest thinking and developments and receive newsletters and project updates.