How should I factor climate change into my investment strategy? How does Adviser Investments manage this portfolio riskThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline.?
Research Analyst Liz Laprade had this to say:
Climate change is a consideration for many investment managers, including us. But after evaluating the findings in the United Nations report released last week, it’s safe to say that this weighty issue is about to become even more of a factor when assessing and selecting long-term stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company.. The report, released by the Intergovernmental Panel on Climate Change, marshals research conducted by thousands of scientists from all over the world. It reveals not only that irreparable damage has already been inflicted on our planet by humans, but also what we can do to try to stem the tide for future generations.
On the heels of that bittersweet message, the Biden administration is trying to pass legislation that would put more dollars and support behind the push for renewable energy and cutting carbon emissions in half by 2030.
If the legislation succeeds, the obvious beneficiaries are renewable energy companies. On the flip side are a small number of companies responsible for most of the fossil fuel emissions around the world, including big oil, energy and coal companies. They would come under increased pressure and could see their costs increase to meet lower emission mandates.
Investors need to be aware that climate risksThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline. are likely to compound in the years ahead. As always, we invest in active managers who we believe are among the best stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. pickers in their respective areas of expertise. And a big part of the process for them is evaluating corporate leadership practices and gauging how companies are preparing for rising risks. As such, our managers are accustomed to considering the winners and the losers within the environmental impact pillar of ESG investing.
Simply put, companies that fail to comply with environmental mandates or don’t try to aid the world in minimizing fossil fuels will suffer and are less likely to make the cut with our fund managers.
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