Experts Advise Investors to Add Climate Change to Their Portfolios

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( — June 16, 2015) — According to a recent study conducted by Mercer, global investment consultants, climate change is going to play a huge role in investment strategies going forward. They warn that investors should take a serious look at their portfolios and assess risk management in terms of the carbon economy. Fossil fuels will certainly be impacted but in each of four possible climate change outcomes, various investments will be winners while others will come out the losers. Mercer joins investment consultants around the globe in assessing and mitigating portfolio risk based on leveraging against various outcomes.

The Four Outcomes in Climate Change

Global temperatures are directly related to the current carbon economy and as a result, temperature change by even a degree or two could create a rise or fall in market prices. Because of this, investment portfolios can utilize such strategies as investing in de-carbonization strategies which are projected to be huge in the coming years. The four potential ways in which climate control can impact portfolio returns range from temperature rises between 2 and 4 degrees Celsius.

For example, a 2 degrees Celsius rise in global temperature could offer returns benefits in equities in emerging markets, real estate, agriculture and timber. However, a 4 degrees rise in global temperatures might just negatively impact those same scenarios. Market analysts are closely monitoring global climate change in order to mitigate risks in managed portfolios.

The Importance of Risk and Order Management

Whilst many investors utilize the services of investment managers, others choose to monitor the market on their own. In both cases, there is an assortment of tools to help track the market which can actually be automated based on key triggers. Portfolio management software is available that can almost completely automate everything from buying to selling and everything in between.

For example, order management can be automated based on ‘if-then’ commands within the program. Broadridge order management is a feature of their portfolio management solutions which can be scaled to any proportions needed for individuals, companies or even portfolio managers. Bear in mind that not all portfolios are based on group investments as a single investor can have a portfolio of investment products that he or she holds. A solution that can be tailored to both large and small portfolio management is ideal.

Financial Analysts Comment on the Mercer Study

One of the world’s leading financial analysts, Barry Ritholtz, states that Mercer’s study is likely to create a whole new set of winners and losers. Whilst agreeing with the above scenarios in terms of temperature rise impacts, Ritholtz further believes that renewables will be major players as well. They will be much more in demand as the projected global rises in temperature begin to play out and could offer higher returns than previously projected.

In any case, those who are looking to mitigate risk, if not increase returns, should closely monitor market data as it changes based on the above advice. Whether or not climate change will seriously impact returns on investment portfolios is yet to be seen, but many analysts believe that the Mercer report should be taken seriously.