97% of fund managers believe uncontrolled climate change will affect investments

10 Jul 2024

97% of fund managers believe uncontrolled climate change will affect investments

A woman picking flowers.

A survey has revealed that the majority of bank and fund managers believe that uncontrolled climate change will impact their investments in the medium term.

Read on to find out how it could affect your finances.

UN: The window for tackling climate change is closing

In the Paris Agreement in 2015, 195 nations pledged to tackle climate change. The agreement aims to limit global warming to “well below” 2C when compared to pre-industrial levels and to “pursue efforts” to keep warming within a 1.5C limit.

Scientists have previously warned that crossing the 2C threshold could lead to irreversible changes to ecosystems and the climate.

However, despite the pledge, the UN warned in 2023 that the window to reach climate goals was closing. A report from the organisation said “much more needs to be done”.

Exceeding the climate target could disrupt many communities and parts of modern life, which may affect the performance of investments.

Most bank and fund managers say climate change will impact investments within 5 years

A survey published in FTAdviser asked bank and fund managers how they believe climate change will impact their investments. An overwhelming majority – 97% – said uncontrolled climate change would affect investments.

What’s more, half believe the effect will start to be felt in between one and five years. In addition, a further 36% agree that it will affect medium-term finances.

The research noted that more than 6,500 institutional investors, such as pension funds, hold bonds and shares in coal, oil, and gas companies worth around $3.05 trillion (£2.4 trillion). Yet, among those surveyed, 97% said it does not make sense to invest in fossil fuel companies with no phase-out plan for fossil fuel production.

It’s a step that more institutional investors are taking, and could be applied to the portfolios of individual investors too.

Two-thirds of pension funds have a net zero commitment in place

The potential impact of climate change and divesting from fossil fuels is something many large institutional investors are already making part of their investment strategy.

Indeed, according to the Pension and Lifetime Savings Association, just 27% of pension funds don’t have a net zero commitment in place. Of those that have a commitment, 9 out of 10 are targeting being net zero compliant by 2050, and 1 in 7 aim to do so by 2035.

As an individual investor, you may want to review the funds you’re invested in to see whether they’re considering climate change and phasing out exposure to fossil fuels. Whether you’re investing through a pension or another type of investment fund, many options consider environmental issues.

Keep in mind that labels funds use aren’t currently regulated. So, while a fund might claim to be “green”, this doesn’t automatically mean that it doesn’t invest in fossil fuels or other companies that may contribute to climate change.

In fact, many funds will allow some investment in the sector. For example, documents might state they won’t invest more than 10% of their assets in the industry. Reviewing the prospectus investment objective and strategy may help you understand if a particular fund aligns with your values.

Businesses in other industries could be affected too

It’s not just fossil fuel businesses that could be affected by climate change either. From changing weather patterns affecting agricultural firms to natural disasters potentially harming supply chains around the world, climate change is something many companies might need to think about.

Businesses that are already considering the impact climate change could have may be in a better position to overcome the challenges. Others could benefit from changes, such as businesses that operate in the renewable energy sector.

As an investor, you might want to consider how businesses are responding to ESG (environmental, social, and governance) challenges, including climate change, to invest in a way that aligns with your views and could lead to improved financial outcomes.

Of course, there aren’t any guarantees and predicting the implications of climate change is difficult.

If you’d like to incorporate ESG issues into your investment portfolio, it’s important to consider what level of risk is appropriate for you and your goals. An investment that aligns with your values isn’t automatically a good fit for your portfolio. Taking some time to weigh up how an opportunity would fit into your wider portfolio could be valuable.

Contact us if you’d like to discuss your investments

If you have any questions about how to incorporate ESG issues into your portfolio or would like to review your investments with climate change in mind, please contact us. We can help you assess which investments align with your views, circumstances, and goals.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Approver Quilter Financial Services Limited & Quilter Mortgage Planning Limited. 08/07/2024

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