Climate action can start in your portfolio

CIO Global Blog

15 Mar 2019

Tens of thousands of school students across more than 100 countries skipped class on 15 March in a global protest against insufficient action to mitigate climate change. The protests, which were inspired by a 16-year old activist from Sweden, include city and country specific policy demands aimed primarily at reducing greenhouse gas emissions. This follows a United Nations report released last November which called for urgent changes to the global economy to avoid severe environmental disruption as soon as 2040.

The sheer scale of the problem may make it seem intractable. But we see several ways investors can contribute towards progress on climate change, while still meeting their investment goals:

  • Efforts by governments, businesses, and citizens to stem carbon emissions should accelerate the growth of companies involved in renewable energy output. Renewables must expand to account for at least 63% of the global power generation mix by 2050 (vs about 20% today). Wind, hydro, and solar offer the most promising growth, in our view, with high potential investments in developers and wind turbine manufacturers. For more small- and mid-cap opportunities across the supply chain, see our long-term investment theme, Renewables.
  • Companies involved in the production of electric cars should also benefit from efforts to reduce emissions. Automobile electrification should expand, too, with the 35–65% target by 2050 for low-emission energy share in the broader transport sector (vs sub-5% now). We estimate that by 2025, around 25% of new vehicles sold globally will be electrified. Supportive regulation, falling costs, and technical innovation should see the broader electric, autonomous, and car-sharing market row around tenfold to USD 400bn. Read more in our Smart Mobility long-term investment theme.
  • By choosing sustainable investing options, investors can contribute to the reduction of carbon emissions, along with other positive goals, without sacrificing economic returns. Green bonds, typically, have the same seniority as conventional bonds, yet their investment proceeds are ring-fenced for green projects, such as carbon reduction. BlackRock finds that a USD 1 million investment in bonds in the Bloomberg Barclays MSCI Green Bond index represents over 2,000 tonnes of CO2 avoided.

So we urge investors to view the UN report as a call to put their capital to work in ways that benefit both their finances and the environment. Sustainable investing and many of our long-term themes provide an opportunity for investors to align their portfolios with their values, without compromising on investment returns.

Author: Jon Gordon, Strategist, UBS AG
Vincent Heaney, Strategist, UBS AG
Christopher Swann, Strategist, UBS Switzerland AG
Sagar Khandelwal, Strategist, UBS Switzerland AG

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