Amidst the Paris Climate Talks, Renewed United Nations Sustainable Development Goals and billion articles, conferences and CSR agendas focused on mitigating the impact of climate change, emerges a new angle in support of the business case for saving earth. This article talks about the potential impact of climate change on publicly traded investments. As per the article, when investors broaden the definition of climate change impact to include any potential gains or losses to a portfolio related to climate change—called climate exposure—the real-time impact of climate change becomes immediately apparent.
The article goes on to outline how mainstream investors will not only be the beneficiaries of better climate exposure management, but how corporations, impact investors and foundations can also benefit from focusing on more resilient investments to outperform less-prepared peers. Read on to stay ahead of the climate investment curve!
I recently published a paper detailing a new tool that I developed called Relative Climate Value (RCV) that is designed to help investment managers respond effectively to the effects of climate change and shifts in environmental legislation. Essentially, RCV separately analyzes the financial impact of climate exposure elements on different equities so that active managers can react quickly to changes in external drivers. In the paper, I use RCV to examine the impact of climate exposure events such as drought, carbon tax implementation, and severe weather on two representative sectors—auto makers and hypermarkets like Wal-Mart and Costco—and recommend investment decisions for each event. Using this approach, an active manager can react quickly to adverse weather or changes in carbon taxation based on the relative impact the event will have on different sectors.