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Climate change

The risks and opportunities

14 February 2019

3 minute read

With climate change accelerating, investors can respond to the enormous challenges and opportunities it brings.

When Prince William interviewed Sir David Attenborough in January at this year’s World Economic Forum, the legendary broadcaster and naturalist issued a stark warning that humans are “destroying the natural world and, with it, ourselves.”1

The impacts of climate change

The planet has warmed by an average of 1˚C in the past century2. While this may not sound like a lot, even seemingly small changes in climate can have potentially catastrophic consequences for people and the planet.

We’re already seeing more frequent and extreme weather events, such as higher intensity hurricanes, increased droughts and flooding, and severe heat and cold spells. These changes are taking their toll on individuals, businesses, communities, governments, as well as life on land and in the sea.

As authors of the UN Intergovernmental Panel on Climate Change report, the world’s leading climate scientists have warned that we have only a dozen years to keep the maximum rise to 1.5˚C. After this, the risks and impact to areas of concern such as the arctic, coral reefs, flooding and crop yields increases significantly more3.

Climate change and investing

The full or potential impacts of climate change are hard to accurately predict. The scale of the challenge may feel overwhelming. However, as Sir David Attenborough also optimistically highlighted at Davos, “We have the power, we have the knowledge, to live in harmony with nature.”

Investors should recognise no industries are immune to the effects of climate change. From influence on raw materials costs and supply chains, to exposure to political risk and forthcoming regulatory changes, to elevated consumer expectations, companies have to be able to adapt to market forces being transformed by climate change. Those who don’t are at risk of losing their competitive advantage, license to operate or customer base.

At the same time, some forward-thinking companies are already working hard to develop innovative products and services to adapt to climate changes or mitigate their effects. These companies recognise that finding scalable solutions to our environmental challenges can create economic opportunities for their growth.

As investors, our money provides the capital that finances these companies. Taking an impact investing approach means considering these risks and opportunities in how we invest. We can combine traditional aims to make a financial return with a contribution to society and the environment.

Choose your portfolio and the planet

Climate change requires individuals to choose how their investments make an impact. However, it doesn’t require you to sacrifice market returns to include in your impact preferences. Though like all investments, your capital can fall in value as well as rise. But if you want to invest to make a more positive contribution to the planet, you have multiple options of investment strategies.

For example, you can choose to continue to invest across all industries but select companies that are best prepared to manage climate risks or survive the transition to a lower carbon economy. This strategy maintains diversification while seeking to minimise negative environmental impact and its contribution to climate change.

Alternatively, you can be more proactive about investing in businesses delivering products and services that are addressing environmental challenges by taking innovative solutions to scale. This strategy generally focuses more on specific industries, for example, energy, agriculture, water and waste, and seeks to tackle particular climate change challenges.

Using these, or other, investment strategies can help to factor climate change risks and opportunities into your portfolio. At Barclays, we’re committed to enabling people and organisations to invest capital in a way that’s intentional about the positive outcomes it seeks to achieve or the negative outcomes it seeks to avoid.

Together, we all have a role to play so that our planet and our portfolios can meet the needs of today without compromising the ability of future generations to meet their own needs.

Of course, like any investment this requires putting capital at risk. To learn more about impact investing, please speak to your Wealth Manager.

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