Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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The scorching hot impact of climate change
ESG
Ida Kassa Johannesen
Head of ESG investments, Saxo Bank.
Whether you believe climate change is real or you are a climate change denier, it is a fact that Europe, North America and Asia are experiencing or are expected to experience record high temperatures during the summer of 2023. Hundreds of millions of people are affected as mercury could go as high as 48 degrees in Italy and 52 degrees in parts of China and the USA. According to scientists, such phenomenon of prolonged heatwaves, wildfires and drought conditions are increasingly likely and are part of a global trend of climate change which has had disastrous impact on people and the environment. Climate hazards such as heat, flooding and water stress could impact 1 in 2 people globally already by 2030 (source: McKinsey).
Global Average Surface Temperature
Global Average Surface Temperature
Source: ClimateDashboard-global-surface-temperature-graph-20230118-1400px | NOAA Climate.gov
What is climate change?
Climate change refers to long-term changes in climate, directly or indirectly attributed to human activity. The main driver of climate change is rising emissions of greenhouse gases (“GHG”) from burning fossil fuels like coal, oil and gas with carbon dioxide (CO2) being the most significant contributor to the warming effect.Climate change has both local and global manifestations including extreme weather, flooding, wildfires, cyclones, monsoon, water scarcity, the melting of ice caps, and the rising of average global temperatures and sea levels. Climate change can also affect our food systems, physical assets, infrastructures, and natural capital and ultimately our health, economies, and ecosystems.
Impacts of climate change:
The Paris Agreement
To tackle this monumental global issue, an agreement on climate change was reached in 2015, the so-called “Paris Agreement”. The Agreement is a legally binding international treaty adopted by 196 parties at the UN Climate Change Conference (COP21) in Paris, France. The goal of the agreement is to hold “the increase in the global average temperature to well below 2°C above pre-industrial levels” and pursue efforts “to limit the temperature increase to 1.5°C above pre-industrial levels.”Addressing climate change is challenging and requires the intervention and commitment of various parties including, governments, regulators, individuals, and investors.
New regulations and technological innovations are coming up with various solutions and measures aimed at:
- Mitigating the environmental impact of climate change by reducing the sources of GHG emissions
- Adapting to the changing environment by taking actions to prevent or minimise the damage of climate change.
It’s important to note that many of the technological innovations, such as fusion power, carbon capture, and solar geoengineering, though promising, are still in early, experimental phases.
The regulatory measures and technological solutions will require extensive investments from public and private sectors and considerable changes to our ways of life. Climate change poses risks and opportunities, and a well-informed investor should be able to manage the former and take advantage of the latter.
Climate investing
Investors can benefit from climate change by investing in companies or sectors that take positive action and provide mitigation and adaptation solutions to climate change. Examples include clean energy or renewable energy (wind, solar, biofuels), low-carbon transportation (electric vehicles), sustainable agriculture, or clean cooling systems. Participating in climate investing is an effective way for investors to take positive action in the fight against climate change, while potentially enjoying a financial upside, which is an attractive value proposition.
How to invest
There are several investment products available including individual stocks, mutual funds, and ETFs aligned to climate benchmarks such as the Paris Agreement or climate transition benchmarks. You can browse through Saxo’s climate change theme for a list of funds and individual stocks focused on tackling the climate change problem in a variety of ways.Before making any investments, remember to review the available information about the product on the platform, and consider your investment objectives, risk tolerance and time horizon.
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