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Why Should Investors Pay Attention to Climate Change?

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Investors are paying more and more attention to climate change. The BlackRock Investment Institute explains the market risks and opportunities as well as how investors can incorporate climate awareness into their investment processes.

Investors can no longer ignore climate change. Whatever one believes about the science behind it, there is no escaping the financial impact of a rising tide of climate-related regulations, changing social attitudes, extreme weather events, and technological disruption. So, how can climate-change awareness be integrated into the investment process?

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Market Realist – Climate change awareness is something you shouldn’t ignore.

With elections looming and anticipations of a Fed rate hike, the topic of climate change and its effect on the economy seems to have lost steam. But is it something to ignore or delay?

Global warming is causing drastic climate change, and the effect is not just environmental. The physical effect of climate change includes droughts, wildfires, floods, heat waves, and more, which we’ll cover more in the next part of the series.

A recent example of this was the 2015–2016 “super” El Niño. El Niño is a weather phenomenon that results in a disruption of normal weather patterns and causes extreme weather changes such as heavy rains, floods, drought, and wildfires in various parts of the world. The effect of El Niño had damaging effects on various industries, mainly the agriculture (MOO) and food and beverage industries (XLP) (IYK).

To get exposure to the agriculture and consumer staples sectors, you can consider ETFs that invest in companies such as Monsanto (MON) and Proctor & Gamble (PG).

Effects of climate change on business

As you can see in the above graph, some of the consequences of climate change on business are physical, products, ratings, prices, business reputation, and regulations. Climate-related risks have resulted in various technological disruptions and climate-related regulations. Extreme weather events such as hurricanes, floods, and droughts are already showing their devastating effects on economies and assets.

According to the landmark Stern Review prepared for the United Kingdom government in 2006, extreme climate change could reduce the global GDP 5%–20% annually by 2100.

In this series, we’ll focus on how climate change can affect business. We’ll further shed light on climate-related risks and opportunities that investors can consider and incorporate into their investment processes.

In the next part, we’ll take a detailed look at climate-related risks.

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