John Tennaro, CIMA®, CSRIC™
June 23, 2020
In the past few years, we’ve seen record-breaking temperatures across the globe. There have been deadly and severe hurricanes in Puerto Rico and the Bahamas, catastrophic typhoons in Bangladesh and Japan, massive wildfires in Brazil and Australia, and unprecedented ice melt in the Arctic – all of which many attribute to climate change. As scientists predict extreme weather patterns will persist and become more erratic in the coming years, climate change is transforming not just the world we live in, but also the way we live in it. And regardless if investors believe climate change is just a threat to carbon-intensive industries now, or an opportunity to do good in the world today and for future generations, neglecting the potential impact of climate change on investment portfolios could wind up being a costly mistake for those who remain unaware or unwilling to adapt.
As many believe the repercussions of climate change will extend to a variety of channels including agricultural production, worker health and productivity, tourism, energy demand, and rising sea levels, scientists, economists, and government officials are grappling with the potential impact extreme weather patterns could have on economic growth and monetary policy.
It is expected that the increased presence of weeds, disease, and insect pests as a result of climate-induced stress will diminish the productivity of most crops and livestock1. In addition, commodity crops that are common in certain areas may no longer be viable or grow well should temperatures continue to rise, which could potentially disrupt the food supply and push prices higher.
Climate change could amplify existing health threats and cause new ones to emerge. For example, among the public health effects resulting from climate change identified by the U.S. Centers for Disease Control and Prevention were increased respiratory and cardiovascular disease, injuries and premature deaths due to extreme weather events, food- and water-borne illnesses and other infectious diseases due to changes in food prevalence and distribution, in addition to exacerbated mental health conditions. It is also estimated that deteriorating health conditions will hamper worker productivity.
The negative effects of climate change on tourism are expected to outweigh the benefits as billions of dollars could be lost due to lack of snow and glacier melt resulting in less tourist activity in winter destinations and ski resorts. In other areas, poor water quality could limit water recreation due to more frequent and intense toxic algae blooms.
Shifting temperatures and weather patterns will change how energy is produced and consumed. In warmer climates, demand for electricity used for air conditioning will increase while demand for energy sources used for heating will fall.
Rising sea levels will eventually submerge small islands and flood coastal regions, threatening the economies of locations that depend on tourism. Other implications include the destructive erosion of land and livestock, and aquifer and soil contamination.
The effect of climate change will vary depending on the sector and region. For example, countries such as those in Northern Europe will likely benefit most from lower oil prices and increased tourism, while emerging economies, oil producers, and countries in warmer climates will likely suffer the most.
Businesses around the globe are feeling the effect of climate change. The increased prevalence of extreme weather has the potential to inflict damage on properties and critical infrastructure, and disrupt supply chain operations and transportation. Some companies are adapting to the new environment and innovation is happening in areas such as renewable energy technologies, energy efficiency and storage, and the infrastructure and services that support them, thereby presenting investors with attractive investment opportunities.
As climate change presents a real threat to the environment, global economy, and our way of life, we believe investors must prepare their portfolios accordingly.
At CIBC Private Wealth, we are dedicated to helping our clients to not only align their portfolios with their investment objectives and regulatory requirements, but also reflect their values. This is the basis for our commitment to providing a range of resources and solutions designed to help best position clients for the opportunities and risks presented by climate change.
To learn more about this topic, read the full white paper, The Unexpected (and Critical) Relationship Between Our Economy and Our Environment.
John Tennaro is the Head of ESG & Impact Investing Solutions in CIBC Private Wealth Management’s Washington, DC office with more than 20 years of industry experience. John is responsible for overseeing all aspects of our firm’s approach to ESG & Impact Investing.
Jerimiah Booream, CFA
August 14, 2020
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