Fight climate change with your investment portfolio

Staci West 21/04/2022 in Sustainable investing

Over the last few years, the world has experienced a series of extreme and unprecedented weather events, including record heatwaves, deadly floods and devastating wildfires. We have now reached scientific – and political – consensus that climate change, driven largely by human activity over the last century, is to blame.

As the IPCC report last year pointed out, we’re at a code red for humanity. We’re living through a climate emergency, with dire consequences for people and the planet. But what are we doing to change that?

“We don’t have time to sit on our hands as our planet burns. For young people, climate change is bigger than election or re-election. It’s life or death.” — Alexandria Ocasio-Cortez, US Representative

The UN’s Sustainable Development Goal #13

The UN’s Sustainable Development Goal (SDG) #13 is to take urgent action to combat climate change and its impact. It tackles not only the 1.5°C target of the Paris Agreement, but also issues like food security and production, terrestrial and wetland ecosystems, freshwater resources, human health, and key economic sectors and services. It is one of the few goals that directly references the need for climate related finance from developed countries to support vulnerable developing countries.

Spotlight on decarbonisation

To a large extent, this goal is policy-oriented and depends on government action worldwide. Two important developments have been the world’s two largest economies – and carbon emitters – changing their stance on climate policy. China announced that it would incorporate climate policy into its national plan, and, under Joe Biden, the US officially re-joined the Paris Agreement. This statement makes it harder for smaller counties not to follow suit.

Decarbonisation, or a low-carbon economy, is an economy that is based around low carbon power sources that have a minimal output of CO2 . It is estimated that, in order to reach global temperature goals of a maximum 2°C rise, $2.4 trillion per year will need to be spent or reallocated.

One example of this direct investment is the Ninety One Global Environment fund that invests only in companies that are contributing to the decarbonisation of the world economy. This fund is at a tipping point of inevitable policy response to the climate pressures we are facing and is starting to respond.

6-minute watch on could decarbonisation become an investment mega-trend?

As we try to move towards a more decarbonised economy, companies will be forced to either make changes to the way they operate or be left behind. Long-term investors can therefore be the driving force for meaningful change.

How can investors help?

If we hit 2°C, the world will become a profoundly different place. There will be almost no coral reefs, devastating heatwaves, wildfires will become more frequent and could make some parts of the world uninhabitable. But limiting global warming to 1.5°C at this stage requires rapid and unprecedented changes in all aspects of society.

In recent years there’s been a lot of talk around net zero in the UK, including one of the most significant areas: green finance. In 2021, prior to COP26, the UK issued their second green bond maturing in 2053, making it the sovereign green bond with the longest maturity in the world*.

A total of £16 billion has been raised from the two green bonds issues, which target projects like zero-emissions buses, offshore wind, and schemes to decarbonise homes and buildings*. Noelle Cazalis, co-manager of the Rathbone Ethical Bond fund  told us more about green bonds in this video. The Liontrust Sustainable Future Managed fund also has the ability to invest in sustainable gilts.

Combating climate change is a group effort, however, and the transition will require not on only government spending but individual investment. One area set to benefit is the shift to electric cars. An obvious beneficiary to this trend is Tesla, the world’s largest electric vehicle (EV) maker. Tesla has been a holding in the Scottish Mortgage Investment Trust since 2013 and today makes up 5%** of the trust’s overall portfolio.

Read more about how to invest in electric vehicles over the next decade

EV and hybrid cars also require an increased number of semiconductors, and chipmakers can benefit from this transition. ASML, a Dutch semiconductor company, is the world’s leading chipmaker and a holding in Capital Group New Perspective^, Janus Henderson European Selected Opportunities**, Jupiter European^ and Rathbone Greenbank Global Sustainability.**

At FundCalibre we have over a dozen different responsible funds that look to target different areas of the climate emergency we face today. For example, the Artemis Positive Future fund looks for companies making a material positive impact on the world through either environmental or social improvements.

Another example is the BMO Responsible Global Equity which approaches the topic on two fronts: to avoid unsustainable business practices; but also to invest in companies where there are problems to be resolved. There are also restrictions on environmental impact with particular consideration to the Arctic and ecologically-sensitive operations.

Discover all our responsible funds here.

Interconnected goals

Investors can help indirectly through projects that focus on reaching over SDG targets, such as renewable energy generation (SDG 7), green buildings (SDG 11), sustainable agricultural (SDG 2) and circularity (SDG 12). All these areas are also making a positive impact on our climate and ultimately link back to climate policies at an individual level.

Fighting the climate crisis encompasses nearly every goal but it would be remiss to not single out both life below water (SDG 14) and life on land (SDG 15) given the direct link to our ability to thrive. Our actions impact our planet in its entirety and ultimately a focus on building climate resilience is key.

*Source: HM Treasury, Second UK Green Gilt raises further £6 billion for green projects, 21 October 2021
**Source: fund factsheet, 28 February 2022
^Source: fund factsheet, 31 March 2022

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