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If the investment industry can’t protect its clients’ money, then what is its purpose?

Risk has changed.

Earlier this month the UK became the first country in the world to declare a ‘climate emergency’. While there is no legal definition for what this means, and it imposes no obligations on the government, it recognises the need to put climate change at the centre of political discussions.

The move follows growing recognition of the severity of the potential impacts if the world warms beyond 1.5 degrees Celsius. As Dr Jason Hickel, an anthropologist and author, explained to the MSCI Global Investing Conference in London this week, the effects would be far-reaching.

“This is not just about our world getting a bit hotter,” says Hickel. “It’s about multiple dimensions of ecological breakdown that pose a severe threat to us.”

These include the potential that hundreds of millions of people could face water stress, and that crop yields could halve. Mass human displacement would also dramatically increase the potential for conflict and threats to the political system.

The required transformation

The special report produced by the Intergovernmental Panel on Climate Change (IPCC) in October last year reached the conclusion that in order to avoid breaching the 1.5 degree Celsius level, global carbon emissions must be halved within the next decade and reduced to zero by 2050.

“This requires nothing less than a total reversal of the present direction of our civilisation,” Hickel argues.

That may sound dramatic, but there is a growing consensus that this is one of the most significant challenges humanity has ever faced. It is unequivocally a threat to global civilisation.

“The good news is that, technically, it is possible to achieve this kind of trajectory,” says Hickel. “But it is going to require mass mobilisation on the level of a World War II-style industrial transformation in order to accomplish it.”

No such mobilisation is possible without the involvement of the financial sector, since it plays such a critical role in the allocation of capital.

“All the tenets of economic dogma are being challenged,” argues Henry Fernandez, chairman and CEO of MSCI.

“We have to change the paradigm of capitalism.”

The risk, otherwise, Fernandez suggests, is that capitalism itself will collapse: “We have to redirect the paradigm for the sustainability of the economic system that has served us well.”

Who moved my retirement savings?

The investment industry is not unaware that there is a challenge. Considering environmental, social and governance (ESG) risks has become standard for most asset managers, and there are nearly 2 000 signatories to the United Nations Principles for Responsible Investing. Together, these signatories represent assets under management of around $90 trillion.

However, a sense of urgency is still lacking across most of the industry.

“The time scale has moved up tremendously,” says the global head of research at MSCI’s ESG research group, Linda-Eling Lee. “A few years ago we were talking about the climate disaster that our children or grandchildren were inheriting. Now we are talking about 2040, which is when I was thinking I would be riding off into the sunset on my retirement savings, only those savings might not be there.”

The industry’s own future is at stake. If it is unable to protect the money of its clients, then what, after all, is its purpose?

Being able to protect capital, however, requires a significant re-imagining of how investment decisions are taken. Specifically, the investment industry needs to reconsider what risk is and how it is conceived.

Many asset managers do already consider how environmental risks might translate into measurable financial risks. The reality, however, is that the risks posed by climate change are potentially far greater than anything that can be financially modelled.

A new paradigm

This is unquestionably a challenge for an industry that relies on numbers. How does it address something that it can’t quantify?

“This is about making choices in the absence of great information, in the absence of great benchmarks, factors and back-tests,” says Urban Angehrn, group chief investment officer at Zurich Insurance. “It’s too new and too uncertain.”

However, not considering the risks because you can’t quantify them cannot be a sustainable strategy.

“Saying the data is not yet there, it’s not perfect, there’s no point in doing anything now – [that] is an active decision,” says Anna Hyrske, the head of responsible investments at Ilmarinen. “The outcome of that is that you’re losing out. The market has moved.”

Ultimately, taking investment decisions in line with the need to transform the current industrial order is about protecting the economic system that is necessary to protect clients’ capital. These cannot be separated from each other.

Read: Why it’s smarter to bet on climate science

Catherine Howarth, chief executive of ShareAction, puts it this way: “For fiduciary investors, I think we need to add this lens that says that when I act on behalf of someone whose long term retirement assets I am responsible for looking after, I am going to invest in companies that will make them a great return, but I am going to take upon myself some responsibility to not contribute to anything that would undermine the long term well-being and interests of these beneficiaries.”

“We can’t quantify it yet,” she says. “But we can quite clearly see what those areas are.”

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Very strange article?

Title has no bearing to the content. Probably cut and past exercise from a few different sources. Unfortunately become par for the course for MW, but then again it is for free. Peanuts and monkeys…

Strange indeed. Quite unscientific, speculative. And thus somewhat meaningless. Best not published.

The climate scientists in the movie The Great Global Warming Hoax tell us that if humans account for global warming it is in the order of one half of one percent.
The global heat source is our Sun and our Earth has had much hotter and cooler periods over thousands of years than we have now due to the variations of energy output like Sun spots and earth’s variations in its orbit around the Sun.

It is the rate of climate change that is crucial. In the geological past, the change to hotter or cooler periods was relatively slow. The changes now are happening much faster and that is what poses the real danger as natural ecosystems and human systems (politics, economies) cannot or will not adapt that quickly. If you do not believe in human-induced climate change, then how do you explain the rapid melting of sea ice in the Arctic in the last 20 years or so? How do you explain the observed occurrence of more intense tropical storms since 2000? Most recently, tropical cyclones Idai and Kenneth occurring in Mozambique. There are many other observed examples of current climate change. Economies / societies that refuse to acknowledge climate change will get left behind as more enlightened ones (Japan, EU, even China) adapt and make use of the associated business opportunities

There’s a difference between those that acknowledge climate change and the emphasis on human contribution to climate change. The last ice age and the impact on woolly mammoths show that climate change can be rapid. It happened with very few humans around. It’s going to happen again with severe consequences for humans. The mechanisms of these changes are unknown but global warming could melt the pole caps which would halt the salt cycle that moves hot water away from the equator leading to a severe drop in temperature closer to the arctic. Yes humans should watch their activities but it’s probably gonna happen anyway.

With all the “how do you explain…,” maybe you can explain why the temperature increases in the Northern hemisphere (particularly the Arctic) are not found in the Southern hemisphere (particularly the Antarctic). In fact there have been temperature reductions in the latter.

He he Mark; no taking sides from me except to say that in modern “debate” climate change is on a par with the Middle East, Trump, race in SA and a few others in that there is no middle ground, no facts are accepted by the “other side” and there are no prisoners (or rules of engagement).

At no time in the history of the planet has there been a population of 8 billion humans impacting on natural inputs.

If you don’t think this is significant, try shifting the axis of the front left hand wheel of a Formula One race car by half a degree and see what happens when you take a corner at 200kph.

@ Mark Sandison…agreed !

Global warming – pulling the wool over the sheeples eyes so they can tax us even more !!

Funnily enough I was in a meting yesterday with some of those interested in the SA “carbon tax”; people active in renewable energy, greenhouse gas reduction systems, carbon credit trading etc. One of the things mentioned first and often was that, in SA at least, the “carbon tax” has zero to do with the environment; the ANC government wants the loot.

For all their stupidity, the one thing that Americans are impeccable at is creating markets out of nothing.

Think the Y2K bug (I don’t know of a single company that had any significant impact from this “bug”)

Think medicines. Pharmaceutical companies dream of everyone in the world taking one of their pills daily and so influence medical guidelines to encourage use of their products.

Global warming and cooling cycles have always been there – like a far slower form of the annual seasons. That is why you get ice ages (note the plural) and why we are not sitting on ice right now. The data on this can be warmed extremely easily and the general public wouldn’t know any better. What has emerged from this global warming trend is various regulations and taxes that effectively force new markets to come into effect. e.g. purported energy saving technologies.

What is interesting about those who have fallen for the mumbo jumbo around this is that if you challenge it in any way you are accused of being a “climate change denialist” which by the looks of things is the worst kind of person that you can possibly be.

My personal view is that I agree with efficient systems implementations e.g. if you can have more efficient power sources and more efficient consumption of that. e.g. through efficient transformers and lights that give off more light per watt.

I have, however, always thought that accusing people of climate change to try and get them to change their purchase behaviours to consume from new markets is complete hogwash of the best American kind.

Of course the next market shift is plastics. I don’t believe that pushing the public to change behaviours through tax around this will make any difference at all to environment impact. The best approach would be to have hardline laws that ban the use of plastics flat out instead of taxing them.

This enhanced social responsibility is just another marketing ploy for suckers.
If you want to make money, buy Ab in Bev or tobacco and oil stocks, .
The SIN stocks, in other words.
Not saying there are not other sectors to consider,but by buying stocks that concentrate on human fallibility is the way to go.

See the following article.

Seems to be irresponsible to ignore this issue.

As far as preserving wealth goes, investment managers will need to be very astute. The half-life of successful companies and industries seems to be reducing over time.

Asking the average reader to read a New Scientist article is asking a lot I’m afraid.

@TryingtoRetire….this explains exactly your moniker of why we all struggle to retire

New Scientist and all these mouthpieces for the Elite so they can milk the majority through yet more taxes under the moniker ‘Global Warming’, like emissions tax which earns BILLIONS for them

While we are made to feel guilty and keep coughing up

See through the deception my piglets

Fund managers stand of fall on their next annual report. To ask the public (generally ignorant of global climate change and the consequences) to motivate these managers is like asking the Pope to bring back Jesus.

Fund managers have to invest in global assets which are all interrelated and if those do not accept that things have to change, neither will the asset allocation of managers, who would have a hard time explaining the the global scenario of self-destruction to Mr and Mrs Bezuidenhout of Springs and why their portfolio has underperformed inflation.

At leat BP has decided that it’s now or never.

The climate is changing, the observations are irrefutable. Whether you believe some of it is due to human-induced climate change and some to external forcing (changes in solar forcing), the fact remains that climate change will, and already is, severely impacting on societies and economies.

To answer “The Navigator”, the Southern Hemisphere has warmed more slowly than the Northern Hemisphere because the latter has a much lower percentage of ocean. Sea water has a much larger heat capacity (takes more heat energy to warm) than does land; hence the Southern Hemisphere does not as yet show the same level of warming. There is still a general warming trend in the Southern Hemisphere although some areas (like part of the Antarctic) currently show no warming trend or even a weak cooling. That is because there are regional changes in ocean circulation (which leads to changes in sea ice coverage and transports of cooler water masses) and regional changes in atmospheric circulation which lead to changes in snowfall and ice formation in certain areas. There is plenty of observational evidence supported by computer model analyses in the scientific literature that explains these regional differences in temperature trends in the Southern Hemisphere

Ha !….global warming !?…that agenda pushed by the 1% to tax the majority worldwide even more

Ever asked where all that emissions tax goes ?……..

But nah, just keep the sheeple so busy they dont have time to even question where all those billions are going

All the while they keep fleecing us

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