- A 2018 report found that climate change is a major driver of investing decisions.
- Sustainable, responsible and impact investing assets expanded to $12 trillion in the U.S. in 2018, up from $8.7 trillion in 2016.
- Climate change is an investment factor that must be viewed in terms of long-term impact in order to gauge returns.
Looks like climate change doesn’t affect just the weather. According to an October 2018 investing report, climate change also affects how people invest their money.
The biennial “Report on US Sustainable, Responsible and Impact Investing Trends” found that “sustainable, responsible and impact investing (SRI) assets have expanded to $12.0 trillion in the United States, up 38 percent from $8.7 trillion in 2016.” The report, released by the US SIF Foundation, also found that about a quarter of the $46.6 trillion in total assets under professional management in the U.S. could be attributed to SRI assets. This all indicates that investors and asset managers now factor in environmental, social or corporate governance (ESG) criteria — which factors in how a company positively interacts with the world around it — when choosing investment assets.
Since the report’s first issuance in 1995, assets using ESG factors have increased 18-fold, which means the investment trend — like climate change itself — isn’t going away anytime soon.
“Money managers and institutions are utilizing ESG criteria and shareholder engagement to address a plethora of issues, including climate change, diversity, human rights, weapons and political spending,” said Lisa Woll, US SIF Foundation CEO. Asset managers considered climate change the top issue when evaluating investments, followed by tobacco and conflict risk, according to the report.
How Does Climate Change Affect Investments?
Several reports indicate that climate change affecting investments across various sectors is not a matter of “if,” but a definite “how.”
The Federal Reserve Bank of Richmond released a 2018 study that predicted rising temperatures could reduce national economic growth in the U.S. by as much as one-third over the next century. Climate change is also expected to reduce global incomes by 2100, according to a 2015 study published in the international scientific journal Nature, which would reduce individual ability to invest.
A 2015 study conducted by global investment research firm Mercer and supported by the International Finance Corporation found the following:
- Industry sectors will be impacted in the most meaningful ways. For example, returns on coal investments could fall by as much as 74 percent in the next approximately 30 years.
- Rising temperatures could have an impact on agricultural and real estate sectors.
- Climate change should be factored as a long-term investment variable.
However, although the report warned of investment risks, it also predicted that there’d be winners in climate change scenarios, particularly within the renewable energy industry.
Click through to find out why you should choose socially responsible investments.
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