2019 may be the year climate change really begins to affect investments, says Jessica Ground, global head of stewardship at Schroders.

Because of that, investors would be wise to pay attention to the possibilities when they put their money into particular projects or sectors, said Schroders, an asset manager based in London that focuses on sustainable investing.

“Our thesis at Schroders is that environmental and social change is accelerating, generating an ever-stronger headwind for companies to navigate,” Ground said. “2018 has provided ample evidence of this, with populism continuing to rise alongside global temperatures. Increasingly, there is nowhere to hide for companies that don’t operate in a sustainable way.

“While most climate change predictions focus on the long term, there are more short-term risks present” today than in the past, Ground said. “As temperatures climb, physical losses could be felt as early as 2019, [especially] given an expected El Niño severe weather pattern, and it’s important to plan investments accordingly.” El Nino is a warming trend experienced periodically in the Pacific Ocean.

“Against this backdrop, environmental, social and governance (ESG) analysis and forecasting has never been more important for investors,” she added.

Oil, gas, utilities and basic resources are the sectors that will be most exposed to the risks of climate change, while technology, personal and household goods and healthcare will be the least affected. The potential cost of insuring the physical assets for companies at the most risk equates to more than 3 percent of their market values. This may have important investment implications, she said.

Investors often neglect to thoroughly understand just how vulnerable a company’s physical assets and infrastructure are to severe disruption and damage as a direct result of drastic weather patterns

The growing influence of young people will put pressure on governments in terms of policy decisions and on corporations in terms of providing solutions to climate-related changes. Raising taxes on many fronts to deal with the problems may also pose a risk to corporations, Ground said.
“We continue to think that companies and consumers face rising taxes on many fronts. For example, carbon taxes continue to increase, although not at the rate we believe is effective enough to really combat climate change,” Ground said. “It doesn’t feel as if the world is quite going to be ready for meat taxes in 2019, but given the benefits for health and the environment we wouldn’t rule it out over the medium term.”
The fact that young people are becoming more interested in voting and in policy issues will increase pressure on governments to take action to deal with climate change, Schroder said.

A third issue that could affect corporations, and in turn investments, is the debt some companies are carrying.

“Fewer companies are struggling to service their debt because their operating income comfortably covers their interest expenses” right now, Ground said.

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