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Climate-neutral investing: The time is now

May 26, 2020

reading time: 8 minutes

by Baiyun Chen, LGT

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Despite the crisis, there is no better time for investments against climate change.

Had scientists warned about the Covid pandemic and its exact consequences 20 years ago, would the world be better prepared now?

When one reflects on the responses to climate change, the answer is probably simple: No. Maybe the current adversity gives a foretaste of the looming climate crisis: how physical shocks like pandemics or full-fledged climate catastrophes can impact daily lives, and affect societies and economies.

We emit 51 billion tons of greenhouse gases to the atmosphere every year, and we have already warmed our planet by 1°C above pre-industrial levels. Now we are experiencing extreme heatwaves, constant droughts and the disruption of global supply chains. Even in the face of the current coronavirus crisis, the world cannot afford to stop the efforts in reducing global carbon emission to net-zero.

The trillions of dollars of government stimulus implemented for the coronavirus pandemic illustrate how expensive remedy can be. In climate change as in pandemics, the costs of a global crisis are bound to vastly exceed those of its prevention. This again underlines the importance of immediate proactive actions from countries, corporates and individuals. 

The potential of your portfolio

So what can individuals do to contribute to decarbonization and to build a climate resilient society? One can buy organic local food and recycle glass, but what is often overlooked in this context is the powerful impact of one's own portfolio. Investing in efforts against climate change not only helps to reduce climate risks, but also gains competitive returns. There´s no trade-off between financial profits and protecting the planet. 

Investments carbon neutral sustainable
Investments can contribute to a greener future.

There are mainly two ways to manage investment portfolios with climate change in mind: one is reducing the carbon footprint of one's portfolios; the other is investing in innovative companies that promote the transition towards a carbon-neutral and climate resilient economy.

When investors "divest", they reduce the carbon footprints and climate change risks in their portfolios, as they choose to avoid companies that are less likely to do well in the low carbon economy transition process, such as oil and gas companies, or those firms heavily exposed to coal and other highly polluting industries.

One can also see climate change as an opportunity and choose to invest in innovative companies with convincing growth potential and cutting-edge solutions; from improving energy efficiency to renewable storage solutions to hydrogen to alternative meat. These companies are pivotal to the low carbon economy transition and likely to benefit along the process. 

Avoid the losers

Achieving net-zero carbon emission is an enormous challenge. It means transforming virtually every activity of our daily lives and every sector of the economy: electricity, agriculture, manufacturing, transportation, and construction. This is fundamentally changing the game for businesses. Some companies will adapt and succeed, and others will fail.

climate change investments carbon neutral
In the age of climate change, a long-term perspective is key.

In order to build competitive advantage of climate change, a company needs a clear strategy and years of investment. Hence, in the age of climate change, it is essential to take a long-term view. In the two main investment approaches discussed, reducing portfolio carbon footprint means avoiding the losers that will fail in the low carbon economy transition.

Meanwhile, when considering climate change as an opportunity, one invests in the winning companies that are building the future. For example, such companies will meet the demand with cars that are fast and fun to drive, but also generate zero emissions and are fully recyclable.

These companies will grow their revenues, reduce their costs and increase their market share against businesses that do not make enough efforts against climate change. For investors, such companies are of high investment quality, and are likely to perform with lower volatility and better return. As we are experiencing now, this holds especially true in turbulent financial market environments.

The future lies not in an opposition between climate change and the economy. When investing in climate actions, investors are able to gain both financial and environmental benefits.

Now it's time to invest

Green Deal EU investments green sustainable carbon
Your investments can reflect your values.

With the current COVID-19 crisis, global decarbonization efforts might be delayed, but not derailed, as global governments stay committed. Take EU´s Green Deal for example: At least 1 trillion Euro of investments will be mobilized over the next decade to achieve net zero carbon emission by 2050. Private investors are instrumental in achieving this goal, as estimates indicate that there is a 279 billion Euro private and public investments funding gap.

Moreover, especially in times of the current pandemic, investments in low-carbon infrastructure such as electricity and transportation can drive significant near-term job creation, while increasing economic and climate resilience in the long term.

With near-zero interest rates for the foreseeable future, there is no better time than now for investments against climate change.

Climate-neutral investing at LGT

In order to combat climate change and support climate friendly investment decisions, LGT Private Banking provides full transparency of portfolio carbon footprint in their clients’ statement of assets. Also, efforts in climate actions has become a criterion in choosing external asset managers at LGT Capital Partners. LGT Venture Philanthropy and LGT Lightstone invest in organizations and companies which directly contribute to UN Sustainable Development Goal No. 13 – Climate Action.

You can find more information here.

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