Investment community must address climate change as a systemic financial risk amid rising market uncertainty - LCP

In the wake of Trump’s victory, much of the investment commentary on the market implications has been focused on short-term reactions: stock market fluctuations, yield movements, and exchange rates. However, a much bigger, financially material consideration for long-term investors is the impact that the results of the US elections could have on climate change and green investment.

Ahead of COP29, Claire Jones, Partner and Head of Responsible Investment at LCP, said: “Climate change is one of the most financially material systemic risks that long-term investors face – rather than just impacting the value of one single stock, it has the potential to depress economies and even cause a financial market collapse.   

“With a likely rollback in climate action from the US government, long-term investors should consider stepping up their own climate action. It is in their interests to contribute to maintaining financial stability and reducing the losses associated with climate change, as well as considering outcomes over time horizons greater than one political cycle.

“One of the initial market responses to Trump’s re-election has been a fall in the value of some clean energy and renewable stocks. Given that markets tend to overreact to news in the short term, these stocks could currently be undervalued, which means it could be a good time to add them to portfolios. Moreover, climate change is happening, and sooner or later, the world will need to adjust to that. Therefore, at least in the longer term, we believe the megatrend towards a lower carbon future will continue.

“Even if investors conclude that investment in renewables and other green stocks is not currently attractive, they can still take actions to address climate change. Policy advocacy is one of investors’ most important levers to address climate change. We believe long-term investors can and should advocate for climate policies that reduce the likelihood of higher warming scenarios, which would be damaging to financial markets (not to mention humanity).

“It is important that the UK investment community does not lose hope or focus. Now, more than ever, the UK investment community must come together and send a strong signal to governments that climate change is a financially material risk that must be addressed. 

“The COP29 climate talks, which start on Monday, are a key opportunity for investors to demonstrate their support for strong climate action and for governments around the world to demonstrate their commitment to delivering it.”