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Climate Change and investing

David Attenborough, Climate change: The Facts

 

“Right now, we are facing a man-made disaster of global scale. Our greatest threat in thousands of years. Climate change.”

"If we don't take action, the collapse of our civilisations and the extinction of much of the natural world is on the horizon." David Attenborough (1)

 

97% of scientists agree that the Earth’s climate is warming and that this is due to greenhouse gases emitted by human activities. (2)  These scientists from around the world are collecting data on weather patterns, ocean temperatures, ocean acidification, sea levels, the atmosphere, marine life, animals and insects, ecological systems, ice caps at the north and south pole, and plant biology.

Health

According to the World Health Organisation climate change threatens the essentials to good health including clean air, safe drinking water, nutrition and shelter. (3)  International medical journal The Lancet reports

“The life of every child born today will be profoundly affected by climate change, with populations around the world increasingly facing extremes of weather, food and water insecurity, changing patterns of infectious disease, and a less certain future. Without accelerated intervention, this new era will come to define the health of people at every stage of their lives.” (4)

Investors and climate change

The impact of climate change already affects world economies and businesses, however there are more risks to come.  According to Australian company regulator ASIC, climate change is "a systemic risk that could have a material impact on the future financial position, performance or prospects of entities". (5)  As such, company directors have a legal obligation to address climate change risks.  The Reserve Bank of Australia has stated that climate change poses an increasing risk to financial stability in Australia, posing risks to financial institutions as well as the financial system as a whole. (6)

"In the future there will not be sustainable finance and other finance, all finance will need to be sustainable. Ultimately there will only be one form of finance, and that will be green finance." Geoff Summerhayes, head of insurance APRA

 

Do the companies you invest in, your super fund, or managed fund consider climate change risks?  Do they have a robust framework to assess, disclose and manage these risks?

Climate change

CSIRO: What are the impacts of Climate Change?

 

Australia is expected to experience an increase in extremely high temperatures, extreme fire weather, extreme rainfall events, tropical cyclone intensity, extreme sea levels, and droughts in southern areas.

 

A decrease in the frequency of extremely cold temperatures is expected, along with fewer tropical cyclones.

 

These changes will pose significant challenges for disaster risk management, water and food security, ecosystems, forestry, buildings, transport, energy, health and tourism.

For example, many animal and plant species may decline or become extinct, water resources are expected to decline in southern Australia, agricultural zones are likely to shift, coastal erosion and inundation is expected to occur more often, energy demand is likely to increase, snow cover will decline and heat-related deaths may rise. (7)

 

CSIRO Website 2019

On 5 November 2019, over 11 thousand scientists co-signed a letter calling for urgent action on climate change.  The letter started with the statement that “Scientists have a moral obligation to clearly warn humanity of any catastrophic threat”.  The UK, Scotland, Ireland, the City of Melbourne, the City of Sydney and Pope Francis have declared a “climate change emergency”. (8)(9)

Investment assets

Some industries or businesses that may be affected by climate change include:

Fossil Fuels

One of the main recommendations of the UN Intergovernmental Panel on Climate Change (IPCC) is to phase out fossil fuels (coal, oil and gas) leading to net zero carbon emissions by 2050. (10)  As more people feel the effects and become concerned about climate change, at some point, community demand for fossil fuels may drop, in favour of renewable energy.  Legislation may limit the use of fossil fuels in order to address climate change.  According to NGO Carbon Tracker, “global proved reserves of fossil fuels still significantly exceed that which can be burned to stay within Paris limits.” (11)  As a result, fossil fuel companies may become “stranded assets” leading to losses for investors if prices drop worldwide.  As world economies move away from fossil fuels in order to reduce greenhouse gases there may be opportunities in wind, solar and battery storage.

Tourism

Beach side resorts are at risk of sea level rises, higher temperatures may bleach coral reefs, ski lodges may experience shorter snow seasons, and the move towards avoiding carbon intensive flying may see an increase in local travel.

Agriculture and food

More severe droughts and insect outbreaks could impact growing seasons and crop yield.  New areas will be required to grow wine and fruit as temperatures rise.

Manufacturing

Manufacturing factories based for example in Asia, may have the workforce affected with more extreme weather and sea levels rising.

Utilities

Electricity providers may have key assets destroyed in areas effected by heatwaves and bushfires.

Health and Medicine

With higher temperatures, there could be more tropical diseases.  More natural disasters will impact infrastructure including access to clean water.  Increased demand for medications and medical devices.

It is worth noting that although some industries may grow as a result of climate change, not all companies or investments in those industries will be well managed and profitable.

School Strike 4 Climate 2019

Our future

When Greta Thunberg was 8 years old she learned about climate change at school and with this new knowledge, she was shocked at adults’ lack of action to address it.  The images in the videos stuck in her head and she was deeply concerned about the future.  She says:  “I thought I couldn’t make a difference because I was too small.” (12)  When she was 15, inspired by students protesting gun laws in the US she decided to strike.  Instead of attending school, she sat by herself outside of Swedish parliament all day.  On day two, people started to join her. 

Greta has lead millions of students to strike for the climate around the world. (13)  It is the youth of today who will inherit the world impacted by climate change.  When asked about missing school, Greta says:  “if we value education and knowledge, then we need to value the expertise of scientists around the world and take action now”.

 

Consider your long term future, in 10, 20 or 30 years:

  • How will climate change impact your future?

  • What world do you want to retire in?

  • What world do you wish for your children or grandchildren?

  • What opportunities does a safe climate provide for children yet to be born?

 

Human impact

 

“Climate change presents the single biggest threat to sustainable development everywhere and its widespread, unprecedented impacts disproportionately burden the poorest and most vulnerable.” – UN (14)

 

According to the World Bank, “Without urgent action, climate impacts could push an additional 100 million people into poverty by 2030.”(15)  Climate change also has a huge impact on human rights such as the rights to life, food, water and housing. (16)  Children are likely to be affected the most. (17)

“Because they are still growing, children are at greatest risk of injury, disability and death caused by the impacts of climate change. They are less equipped physically, mentally and emotionally to cope with life-threatening conditions. The greatest killers of children – malnutrition, diarrhoeal disease and malaria – will get worse because of climate change. Children living in developing countries face the greatest risks of all, not because climate change effects will be any worse there than in other countries, but because poverty limits their ability to respond.” World Vision (18)

 

By 2050, 143 million people across developing regions may become climate migrants, with families and whole communities forced to seek safer places to live. (15) 

When considering climate change, there is a human impact, from assisting Australian coal miners and communities to change to new industry, along with addressing loss of land in the pacific islands and how developing countries such as India can improve the standard of living of people in poverty, while still addressing climate change.

Taking Action

According to Melbourne University and SGS Economics & Planning, “Transitioning to a clean economy and reducing emissions would save the Australian economy $549 billion over the next decade.” (19)

Some of the key actions to address climate change include:

  • Switching from fossil fuels to renewable energy for your household;

  • Moving to a more plant based diet;

  • Reducing food waste;

  • Purchasing from local suppliers to reduce carbon miles;

  • Purchasing better quality products;

  • Reducing air travel;

  • Purchasing less products also reduces the impact on the world’s finite resources.

 

You may choose to engage with your local MP and council to take action on climate change.  Also, you can ask your employer how they are managing climate risk and to set targets to reduce their carbon emissions.

You might like to consider changing your banking and mortgage to a bank that does not lend to fossil fuels.  In addition, you may like to consider if you would also like to make a choice with your investments and superannuation.

Financial Advice

At Gold Leaf Financial Services, climate change risk is one of the key risks we consider when providing financial advice.  We can recommend investments in companies, managed investments and super funds that meet your personal ethical values.  If you would like to divest from fossil fuels and other industries contributing to climate change, and instead invest in climate solutions, contact us to arrange an appointment.

Further reading

The Intergovernmental Panel on Climate Change (IPCC)

Investor Group on Climate Change (IGCC)

Task Force on Climate Related Financial Disclosures (TFCD)

The Climate Council

Divest/Invest

350.org

Climate for Change

Climate and Health Alliance

UN Sustainable Development Goals (SDGs)

Disclaimer

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances.  Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs.  We recommend investors obtain financial advice specific to their situation before making any financial investment decision.

The above article and website links are provided for information only.  Gold Leaf Financial Services, Mary Campbell and Affinia Financial Advisers do not endorse or recommend any business, charity, product or service mentioned in this blog post.

 

 

References

  1. Sir David Attenborough: Climate change 'our greatest threat', Matt McGrath, BBC 3 December 2018 https://www.bbc.com/news/science-environment-46398057

  2. Global Climate Change Vital Signs of the Planet, NASA https://climate.nasa.gov/scientific-consensus/

  3. Climate change, World Health Organisation, 2019 https://www.who.int/health-topics/climate-change#tab=tab_1

  4. Lancet Countdown: Tracking Progress on Health and Climate Change The 2019 Report, The Lancet Countdown 2019 http://www.lancetcountdown.org/2019-report/

  5. ASIC names climate change 'systemic risk' in rulebook, James Fernyhough, Australian Financial Review 12 August 2019  https://www.afr.com/companies/financial-services/asic-names-climate-change-systemic-risk-in-rulebook-20190812-p52gbg

  6. Reserve Bank warns climate change posing increasing risk to financial stability, Katharine Murphy, The Guardian Australia 2019 https://www.theguardian.com/australia-news/2019/oct/04/reserve-bank-warns-climate-change-posing-increasing-risk-to-financial-stability

  7. What are the impacts of climate change, CSIRO 2019 https://www.csiro.au/en/Research/OandA/Areas/Assessing-our-climate/Climate-change-QA/Impacts

  8. Climate emergency declared by 11,000 scientists worldwide who warn of 'catastrophic threat' to humanity, Michael Slezak ABC 6 November 2019 https://www.abc.net.au/news/2019-11-06/climate-change-emergency-11000-scientists-sign-petition/11672776

  9. Pope urges politicians to take 'drastic measures' on climate change, Philip Pullella Reuters 1 September 2019 https://www.reuters.com/article/us-environment-pope/pope-urges-politicians-to-take-drastic-measures-on-climate-change-idUSKCN1VM161

  10. IPCC climate change report calls for urgent action to phase out fossil fuels – as it happened, Matthew Taylor, Matthew Weaver & Helen Davidson The Guardian 8 October 2018 https://www.theguardian.com/environment/live/2018/oct/08/ipcc-climate-change-report-urgent-action-fossil-fuels-live

  11. Balancing the Budget: Why deflating the carbon bubble requires oil & gas companies to shrink, 1 November 2019 Carbon Tracker Initiative https://www.carbontracker.org/reports/balancing-the-budget/

  12. Greta Thunberg, schoolgirl climate change warrior: ‘Some people can let things go.  I can’t, Jonathan Watts, The Guardian 11 March 2019 https://www.theguardian.com/world/2019/mar/11/greta-thunberg-schoolgirl-climate-change-warrior-some-people-can-let-things-go-i-cant

  13. Greta Thunberg: How one teenager became the voice of the planet, Amelia Tait, Wired 6 June 2019 https://www.wired.co.uk/article/greta-thunberg-climate-crisis

  14. Action on Climate and the SDGs, United Nations Climate Change UNFCCC https://unfccc.int/topics/action-on-climate-and-sdgs/action-on-climate-and-sdgs

  15. Climate Change, The World Bank 2019 https://www.worldbank.org/en/topic/climatechange/overview#1

  16. What has climate change got to do with human rights? Amnesty International 2019 https://www.amnesty.org.au/climate-change-human-rights/

  17. Environment and Climate Change, UNICEF, 2019 https://www.unicef.org/environment-and-climate-change  

  18. Climate change: The effects on children, World Vision https://www.worldvision.com.au/global-issues/work-we-do/climate-change/climate-change-the-effects-on-children

  19. Transitioning to a clean economy and reducing emissions would save the Australian economy $549 billion over the next decade, Tom Kompas, Ellen Witte & Marcia Keegan, Melbourne University and SGS Economics and Planning June 2019 https://www.sgsep.com.au/assets/main/Australias_Clean_Economy_MSSI_Issues_Paper12.pdf

  20. Read Greta Thunberg’s powerful speech to the U.N. Climate Summit, Adele Peters Fast Company, 23 September 2019 https://www.fastcompany.com/90407862/read-greta-thurnbergs-powerful-speech-to-the-u-n-climate-summit

  21. Australian insurers say 'act now' on climate change, James Fernyhough Australian Financial Review 24 February 2019 https://www.afr.com/companies/financial-services/australian-insurers-say-act-now-on-climate-change-20190221-h1bjck

  22. Former fire chiefs demand urgent action on ‘escalating climate change threat’ Maani Truu, SBS News 10 April 2019 https://www.sbs.com.au/news/former-fire-chiefs-demand-urgent-action-on-escalating-climate-change-threat

  23. School Strike for Climate 2019 https://www.schoolstrike4climate.com/

Gwen and Tom’s ethical super

 

Gwen and Tom read an article about super funds investing in fossil fuels and wanted to know where their super is invested.  They are concerned about climate change and the world their children and grandchildren will inherit.  They also wondered whether they will have enough money to retire and if they should make additional super contributions. 

 

They saw a Gold Leaf Financial Planner and discussed their values and their goals.  The adviser recommended a super fund invested in line with their risk profile that does not invest in fossil fuels and instead invests in companies with low carbon emissions.  The fund also invests in energy efficiency, renewable energy and recycling companies.  Their adviser recommended making additional contributions to super each year which had the added benefit of reducing their tax.  They also started an ethical investment to grow their wealth outside of super in case the super rules change.  The adviser provided projections showing they will have enough money to have a comfortable income throughout retirement.  Gwen and Tom will have funds to renovate their kitchen, visit their daughter who lives interstate each year, travel around Australia and provide financial support for their grandchildren’s higher education.

 

By following their financial planner’s recommendations, Gwen and Tom feel content they have ethical investments that match their values.  Having a roadmap for how to reach their retirement goals means Gwen and Tom feel a lot more confident about the future. 

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