Our approach to climate change
The economic impacts of climate change on specific markets, regions, and investments are complex, varied, and uncertain. We recognize the importance of the global goal of achieving net-zero emissions by 2050 or sooner, in order to mitigate climate-related risks, and believe that considering climate-related risks and opportunities in our investment approach can enhance our long-term risk-adjusted returns.Read the full document
The economic impacts of climate change on specific markets, regions, and investments are complex, varied, and uncertain. All industries, sectors, and geographies will face climate-related risks and opportunities, although to varying degrees and in different ways.
Policy, market, and technology developments may increase consumer demand for more sustainable food products and disrupt incumbent farming practices and food production methods. Longer-term shifts in climate patterns will result in lower crop yields in some regions and higher yields in others. These will also cause volatility in operating costs.
Increased carbon regulations will lead to higher compliance costs. Policy support for substitutes, decreased global demand for some fuel types, increasing production costs and falling prices may cause devaluations and stranding of assets. Opportunities include increased funding and investment in low-carbon technologies, energy storage, renewables, and alternative fuel.
Changing climate patterns will affect growing seasons and yields, and the natural range of tree pests will expand (e.g., Mountain Pine Beetle), causing increased costs and lost production. Opportunities include the role of forests as carbon sinks, increased use of wood as a low-carbon material in construction, and potential competitive advantage due to the effects of carbon pricing on high-carbon materials.
Damage to corporate assets and disruption of supply chains from weather events will result in higher operating costs and reduced production capacity and revenue, as well as a possible rise in insurance premiums and/or an inability to insure. Opportunities include increased investment in low-carbon technologies and new products or markets.
New building and energy efficiency standards will require additional capital investment. Weather events will damage assets and may increase insurance premiums, and/or lead to an inability to insure. Opportunities include investing in infrastructure, buildings and construction that implement climate adaption strategies, which will improve resilience (e.g., flood proofing, moving mechanical systems).
Increased carbon regulations will lead to higher compliance costs for high emitting industries (e.g., steel). Resource availability, water stress, and damage to corporate assets from weather events will result in higher operating costs. Opportunities include increased demand for metals that will fuel a low-carbon economy (e.g., lithium, zinc, aluminum for batteries).
Higher fuel costs will lead to increased operating costs and a focus on new technologies. Plans to phase out the use of internal combustion engines have been announced by some major economies. Opportunities include increased public and private investments in low-carbon technologies and alternative fuels for public transit, electric and autonomous vehicles.