A new Mercer research report, “Investing in a Time of Climate Change,” is fascinating for what it is (and isn’t): a pure investment thesis, not a screed on science or politics.
The report is especially timely, given a new National Oceanic and Atmospheric Administration report showing the so-called global-warming hiatus was the result of an error in measuring ocean temperatures. There has been no slowdown in warming, according to the latest data.
I don’t want to debate the science, but rather to focus on the investment risks the report discusses. As we have noted before, this is a question of industry market share, corporate profits and investment performance – not science.
In the real world, climate-change deniers are and will be giant money losers.
I expect those who suffer from cognitive dissonance over whether global warming is real will soon be greeted by a brutal Darwinian result in the markets. I don’t make many forecasts but here is one: It is only a matter of time before the deniers exist only in think tanks funded by the fossil energy industry and oddball conspiracy groups.
The report identified four climate scenarios and four climate risk factors, each of which has differing “impacts on returns for portfolios, asset classes, and industry sectors between 2015 and 2050.”
The three broad conclusions of the report are:
• Climate change will give rise to investment winners and losers.
• The biggest risks are at the industry level.
• Impacts on asset-class returns will be material, but vary widely by climate-change scenario.
Below is a chart from the report showing projected returns by asset class: