The study says that the fate of the rainforest is crucial to the health of the planet because it is home to a unique array of animal and plant life, stores a huge amount of carbon and strongly influences global weather patterns.
Large swathes of the Amazon could become sparsely forested savannah, which is much less efficient than tropical forest at sucking carbon dioxide from the air, as the giant forest traps carbon that would otherwise add to global warming.
With more than 140 countries responsible for 90% of global emissions targeting net-zero and similar pledges being made by international organizations and private investors at last year’s UN Climate Change Conference, the road to net-zero carbon has become a critical political and environmental topic, as well as an investment theme.
Amantia Muhedini, UBS Sustainable Investing Strategist notes that the change in global climate patters has implications for investment portfolios, “creating risks that need to be considered and opportunities that could be seized.”
“While some risks are physical, driven by increasingly extreme weather patterns or permanent landscape changes… other risks are a result of the climate transition, driven by changing regulation, technology adaptation, or changing consumer patterns and perceptions.”
Muhedini says “sovereigns and municipalities are exposed to climate change risks as well, as erratic weather patterns coupled with diminishing non-renewable resources could not only disrupt tax revenue, but also result in social and political instability.”
However, despite the environmental issues faced, for companies and sovereigns that are already prepared, this transition presents opportunities.
For example, “companies that bring solutions to the climate transition in sectors such as renewable energy or food and agriculture are well positioned to benefit from shifting consumer preferences and government incentives,” M uhedini says.
Unraveling the complexity: Where to begin?
While there is no quick fix solution to creating a climate-resilient portfolio, it might be helpful for investors to think about how to prepare a portfolio for a future that is more aware of climate change. CIO has a strong conviction in diversified sustainable investing asset allocation, and believes that different sustainability-focused and impact strategies can be mixed to prepare for the climate transition.
- Environmental, social, and governance (ESG) leaders strategies may invest in companies that have demonstrated better energy management and more diverse recruitment practices, which may then improve their resilience and adaptiveness to key focus areas highlighted in this report;
- ESG themes may provide exposure to longer-term solutions;
- Green bonds can help channel financing toward such solutions or help companies finance their transition overall;
- ESG engagement through share- or debt-holdings could extend investor influence to accelerate ESG improvement by companies; and
- Multilateral development bank bonds can direct capital toward emerging markets to build resilience.
The Nature Climate Change study is based on month-to-month observations of satellite data from the past 20 years that has mapped the biomass (the area’s organic material) and the greenness of the forest to show how it has changed in response to fluctuating weather conditions.
For more, see Sustainable Investing Perspectives: 2022 New Year edition, 7 January, 2022.
Main contributor: Joe Melvin
Read the full CNN article on the study from Nature Climate Change.
