"A tide of new regulations to combat climate change is rising," BlackRock said in a report. "The risks are underappreciated, yet could soon start to unfold."
Strategies for climate-proofing portfolios
Why does climate-aware investing matter now more than ever? The financial impacts of a rising tide of climate-related regulations, extreme weather events, technological disruption and changing social attitudes have the potential to affect all portfolios.
The U.S. and China recently announced they would ratify the Paris agreement on climate change, a multi-nation pact to reduce carbon emissions. The reductions herald significant regulatory actions over coming decades, including higher taxes on carbon emissions. We could also see technological innovation and the declining costs of alternative energy sources quicken the disruption to existing business models already felt by some industries.
The longer an investor's time horizon, the more climate-related risks compound. Yet we see long-term investors also as better positioned to invest in new technologies that take time to bear fruit. And short-term investors can be affected by here-and-now regulatory developments and other near-term risks. Climate-proofing portfolios can involve investing in benchmarks that take climate into account, benchmark optimization or proactively investing in climate-aware companies. Bottom line: We believe there is little downside to gradually incorporating climate-change awareness into the investment process—and even potential upside. Read more in the BlackRock Investment Institute’s latest publication Adapting portfolios to climate change.
Read more at Blackrock Global Weekly Commentary: Positioning for Climate Change
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