Investing in the era of global warming

Investing- Meeting GRAMThe 20th of Rome and the COP26 climate conference in Glasgow, which ended, testify to the increasingly decisive attitude of world leaders, their readiness to move to concrete actions to reduce greenhouse gas emissions.

These measures, like any other regulatory action by states, will inevitably affect the stock markets. Cancellation losses alone could reach $2.3 trillion. But there are also promising assets with significant potential for growth in value.

One is a loss, the other is a gain.

The 26th session of the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP26), which began on October 26 in Glasgow, Scotland, ended one day after the scheduled date.

Just on November 13, representatives from nearly 200 countries around the world – including US President Joe Biden, British Prime Minister Boris Johnson, Indian Prime Minister (the third country after the United States and China in terms of greenhouse gas greenhouse) Narendra Modi – managed to agree on a final declaration.

The list of main topics looked like this:

  • measures to reduce greenhouse gas emissions in order to keep the temperature increase within 1.5°C compared to the base year 1900;
  • limit the use of coal as fuel;
  • develop rules for trading so-called carbon credits;
  • expand financing for green projects in developing countries.

At the same time, Alok Sharma, president of the conference, promised to “leave coal in history”, identifying this problem as the main obstacle to achieving the goals of preventing global warming. However, China and India have at this stage managed to soften the rhetoric of the final declaration by changing the language on the continued use of coal from “phasing out” to “phasing out”.

The compromise reached “does not live up to the promises made in Paris,” said A. Sharma. And this despite the resolute attitude of world leaders, which they demonstrated shortly before COP26 during the G20 summit in Rome. There, the participants managed to agree on a phased reduction, until the end of 2021, of investments in new offshore coal-fired power plants and support the efforts of those countries that reduce electricity generation using a “dirty” energy resource.

«It is very easy to propose something complex. It is much more difficult to implement all this. What countries have done today GRAMTurning 20 is a step forward in a long and difficult journey of transformation. And we still don’t know what the end point of this process will be.», indicated Italian Prime Minister Mario Draghi.

And if politicians can afford such vague formulations, then financial analysts are already beginning to calculate the possible consequences of measures to prevent global warming for the world economy and stock markets. Especially if these measures begin to materialize.

In particular, Bank of America predicts that a change in climate policy could lead to write-offs in coming decades for companies that simply cease to exist. We are talking about 2.3 trillion dollars. On the other hand, investors have the opportunity to benefit from investing in green industries and businesses that will be especially favored by governments and the general public.

Factors that can influence the stock markets deserve special attention:

  • measures to limit the use of “dirty” fossil energy sources, mainly coal;
  • finance projects in the field of renewable energies and the reduction of greenhouse gas emissions;
  • launch of the so-called carbon credit trading system.

According to a senior analyst at an investment firm Investment Lombard Odier Managers Michael Urban, all of these commitments could lead to “major shifts in market expectations, and this could happen very quickly.” Winning and losing actions will appear.

Focused on growth

According to analysts Bank of America, up to a third of new investments in the stock market today are directed to assets, in one way or another related to the achievement of sustainable development goals. During the last 3 quarters, investments in new companies related to clean technologies and emission reductions have grown at record volumes: almost $37 billion per month.

Morgan Stanley Note that the measures implemented by governments to stimulate the production and accumulation of renewable energy will increase the interest of investors in companies such as Tesla, Siemens Energy, Ganfeng Lithium, Panasonic, Iberdrola.

To promising analytical assets Bank of America they include projects in the development of carbon capture and storage technologies (Aker Carbon Capture) and biofuels (Raizen Energia and Neste Oyj).

investment company Lombard Odier Investment Managers recommends paying attention to companies that include targets to reduce their carbon footprint in their development strategy. An example is Nippon Steel, which is developing hydrogen technology to reduce greenhouse gas emissions.

To potentially promising objects for investment in Berenberg Bank include the insurance company AXA – plans to completely exclude coal-related activities from its business.

Experts also point to significant growth potential for the capitalization of companies involved in the development and production of wind power generators, solar panels, lithium-ion batteries, electrolysers and fuel cells. International Energy Agency (IEA). By 2050, this market may reach $27 billion.

It is the results of the COP26 conference that are considered in Goldman Sachs Group, could serve as a catalyst for the resumption of strong growth in shares of “green” companies after the decline experienced in 2021.

This opinion is shared by the director of the Center for Climate Change. HSBC holdings Wei-Shin Cheng. He trusts that the positive results of COP26 “set the general tone for a review of climate policy in the medium and long term”.

Interrupted flight of “green” shares. After skyrocketing in 2020, renewable energy stock prices stalled throughout 2021. Source: Bloomberg

At the same time, according to the data BloombergOver the past two years, stock returns for companies that positively contribute to reducing greenhouse gas emissions have consistently outperformed the market average.

“Green Marathon” Since the beginning of 2019, the value of shares included in Societe Generale’s European Green Deal index has increased by 147%. A fountain – Bloomberg

Values ​​under ambient pressure

In addition to direct coal mining companies and thermal power plants that use this raw material, the sectors of the economy with the highest volumes of greenhouse gas emissions will be under pressure from climate policy: airlines, ocean carriers and the chemical industry.

In particular, analysts point to this Morgan Stanley, which included companies such as American Airlines Group, Yanzhou Coal Mining and China Coal Energy on the list of stocks whose value will be negatively affected by measures to limit CO2 emissions.

And in the analysis department General Partnership The oil and gas industry is also included among the industries affected by “climate impact”.

In addition to potential sanctions, the sectors with the highest greenhouse gas emissions will face worsening borrowing conditions in credit markets. Therefore, many financial institutions declare their readiness to phase out financing for projects related to coal combustion.

Then, JP Morgan Chase & Co. joined the creditors’ association, including Morgan Stanley, Citigroup Y UBS Group — who have committed to aligning their portfolios with zero emissions targets by 2050.

By 2025, reduce by 25% the assets with maximum greenhouse gas emissions and take into account the expectations of shareholders about the contribution of companies to the fight against global warming, he asked and City of London Corporation – Municipal Government of the City of London.

Additionally, companies with the highest carbon footprints will begin to experience higher costs associated with environmental fees, financial reporting, and regulatory compliance. mid october european central bank ordered credit institutions to take into account climate risks when granting loans and carrying out commercial transactions, since during the stress tests in March-June 2022, the regulator will begin to take these factors into account.

in a financial company Legal & general Investment Management considers it convenient, when choosing assets for investment, to focus on the country of origin and the activity of the object of investment. The general reliance of a particular market on fossil commodities can also negatively affect asset performance. As an example, the financial manager of Legal & General Andrzej Pioch names Poland.

Finally, the direct negative impact of global warming should not be ruled out. analysts UBS Global Wealth Remember that owners and operators of real estate in coastal areas are under threat of serious financial loss due to natural disasters.

2 Replies to “Investing in the era of global warming”

  1. Very nice info and right to the point. I don’t know if this is actually the best place to ask but do you folks have any thoughts on where to get some professional writers? Thx 🙂

  2. One thing I would really like to say is before purchasing more personal computer memory, have a look at the machine in to which it could well be installed. When the machine can be running Windows XP, for instance, the actual memory threshold is 3.25GB. Using above this would easily constitute a new waste. Be sure that one’s motherboard can handle the upgrade volume, as well. Interesting blog post.

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