How climate change affects investments

It is no secret that climate change affects us in various ways, including impacting the risk profile of many industries and companies in which investors used to inject capital with relative peace of mind.

Faced with such a scenario, experts say there are two ways to deal with it.

The first is to reexamine investment criteria linked to the effects of climate change that may constitute potential risks for investments. Likewise, to understand that it is not only a matter of evaluating but also of managing such risks (physical, legal, public policy, transition, among others) considering this new variable.

The second is through the visualization of emerging business opportunities created by a new economy aimed at the decarbonization of nations and responding to the demands of international markets, consumer demands, domestic legislation and new public policies on environmental issues. Signals that indicate where to look in terms of investments.

Industries in all sectors, such as mining, energy, food and transportation, are experiencing the effects of growing regulatory pressure in terms of gas emissions, together with changes in consumer habits and the development of new cleaner technologies that are currently attracting the interest of investors.

Sustainable investments

Sustainable investments are those that contribute to environmental preservation and efficiency; for example, those focused on renewable energies, consumption of raw materials, regulated exploitation of water and soil, waste management, control of greenhouse gas emissions, protection of biodiversity and circular economy. This category also includes those that contribute to a social objective, such as the fight against inequality, social integration and cohesion, as well as the strengthening of labor relations.

In this regard, in Latin America and the Caribbean, investment in green bonds has increased eightfold over the last five years. According to data from the Inter-American Development Bank (IDB), 2020 saw an increase in green bonds with a volume of 12.5 billion dollars.

Given the vulnerability of the area, it is estimated that the region will require some 50 billion dollars annually to address events related to climate change, as well as 150 billion for mitigation actions in this regard.

Experts also highlight the region’s potential for investment, as it is the largest source of biodiversity in the world and has a vast clean energy matrix, as well as great areas of opportunity in terms of infrastructure.

Thus, energy is the sector most financed through green bonds, with half of the allocations to renewable energy projects, mainly wind and solar, while buildings and water, two of the most financed sectors worldwide, are among the lowest in the region, with 4% each.

The biennial Global Sustainable Investment Review 2020, published by the Global Sustainable Investment Alliance (GSIA), shows the prevalence of sustainable investment across the global investment sector, with assets under management amounting to US$35.3 trillion, a 15% growth in two years, and in total equivalent to 36% of all assets under management.

As we can see, the global climate scenario is reorienting investments towards new business opportunities that are not only profitable but also more environmentally friendly.