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Climate Change: Investment Implications of a Systems View

Synopsis

Read or download the full Thematic Research Highlights Report [pdf].

The complete white paper summarizes the science of climate change, the regulatory developments in climate policy and carbon markets, and the attitude shifts that are occurring among consumers, leading businesses and investors. In addition, a "systems view" of climate change reveals the interrelation of several sustainability issues, which broadens the set and complexity of second-order risks and opportunities for investors.

Background

Today there is broad international scientific consensus on climate change and its link to human activity. Climate change has crept up the corporate agenda to become one of the most important factors affecting the long-term operating environment for business. Increasingly, investors are beginning to price this into their investment decisions and allocate capital to companies that are fully integrating climate change considerations into their strategies, cultures and operations as a means of risk management, cost cutting and revenue maximization.

Conclusions

Climate change is an urgent challenge that affects long-term corporate profitability, and therefore must be systematically integrated into investment analysis. The pace of climate change is accelerating and will have material effects on equity markets in the short, medium, and long term.

Sample Investment Ideas

  • Industrial Sector: clean energy infrastructure, process optimization, demand-side efficiency, biofuels, renewable energy (geothermal, solar, wind, wave), carbon sequestration, hybrid vehicles, clean fossil fuels, industrial gases, carbon trading, ecosystem remediation, adaptation infrastructure, water scarcity (desalination), urbanization, green architecture, sustainable mobility.
  • Financials Sector: climate risk management across products, sustainable real estate investing, expertise in carbon markets, project finance for ecosystem restoration and regeneration.
  • Consumer Sector: water intensity of operations, changing agricultural patterns, energy efficient appliances and household goods.
  • Healthcare Sector: disease migration, impact of natural disasters on healthcare budgets.
  • Telecom, Technology & Software Sector: distributed energy systems, software for efficient building design, smart metering, and grid technologies.

Implications For Business

Businesses face uncertainties in three dimensions: 1) the scale, pace, and nature of physical climate change, 2) regulatory landscape developments, and 3) global attitude shifts. To systematically examine company impact, Generation has developed the following approach:

chart showing Generation's approach for assessing climate change impact