Movers and SHAKERS
Will New 2020 Climate Change Policies Affect the Market?
(Note: companies that could be impacted by the content of this article are listed at the base of the story (desktop version). This article uses third-party references to provide a bullish, bearish and balanced point of view; sources listed in the "Balanced" section)
In 2015, more than 190 countries adopted the first accord that asked all countries to join in on the battle against climate change. The long-term objective was to make sure global warming stayed well below 2 degrees Celsius and to lower overall greenhouse gas emissions. To achieve these goals, the countries agreed to set national targets every five years and more than 180 countries have already submitted theirs for the first cycle of 2020.
The Plan. The Principles of Responsible Investing (PRI), which represents a group of investors with $86 trillion of assets under management, says future business projections are not aligned with the targets set in the Paris Agreement. They have released a plan to fundamentally reset forward-looking thinking and asset allocation, which they call the Inevitable Policy Response (IPR). Under this plan, oil demand peaks in 2026-2028, thermal coal will be virtually non-existent by 2040, and more than half of the world’s electricity will be generated by wind and solar by 2030. This change may negatively impact certain sectors, but it also opens up growth potential for companies that come up with new solutions.
Change Has Not Occurred. The changes needed to achieve the goals of the 2015 Paris climate agreement are yet to be seen. On Wednesday the Principles of Responsible Investing (PRI) urged policymakers to comply with the adjustments. At the United Nations Climate Action Summit, they announced that much more needs to be done by governments to expedite the low carbon transition. The group is pleading for governments to phase out coal power and fossil fuels.
Consequences of the Delay. Resulting from minimal policy changes, the PRI believes there will need to be a forceful and abrupt change by 2025. They feel this will create much more disruption that businesses are not yet prepared for. They warn that investment forecasts for oil and gas companies are out of sync and we are currently over-reliant on a business-as-usual outlook.
It is Inevitable. Some may not want to admit it, but change must happen to limit global warming. The sectors that produce carbon pollution are still lucrative, so investors continue to pour in capital; but if the change does not start to slowly take place, it will have a larger impact in the future. The PRI is hoping for a rapid, orderly movement rather than a delayed and disorganized one.
https://www.cnn.com/2019/09/18/investing/climate-change-investors/index.html, Charles Riley, September 18, 2019
https://www.cnbc.com/2015/12/13/paris-climate-agreement-all-you-need-to-know.html, CNBC, December 13, 2015