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What the extinction rebellion could mean for investing
Anyone who has picked up a newspaper or tuned into the news in the last fortnight will have noticed that climate change has managed to topple Brexit as the hot topic of discussion in the UK.
Just a week ago, a group of environmental protesters glued themselves across the entrance to the London Stock Exchange while others staged a ‘die-in’ at the Natural History Museum and thousands more blocked Waterloo Bridge and Oxford Circus to draw attention to climate change.
In a poignant moment, 16-year old Swedish climate activist Greta Thunberg told an audience of MPs that her future and that of children everywhere had been sold by politicians ‘so that a small number of people can make unimaginable amounts of money’.
Public demonstrations aimed at raising awareness of climate issues have been staged as far afield as Australia and India.
INVESTING FOR CHANGE
Investment managers, under pressure themselves to integrate environmental, social and governance (ESG) policies into their processes, are putting increasing pressure on companies to act more sustainably and to publicise their strategies.
As climate change makes the weather less predictable, countries are under pressure to build resilience into their agricultural strategies using new farming methods and improved water infrastructure.
Funds such as Impax Environmental Markets (IEM) are exposed to the growing market for environmental services through stakes in quoted companies, particularly those related to alternative energy, energy efficiency, water treatment and pollution control.
Investment trusts such as John Laing Environmental Assets (JLEN) own a range of real assets instead, from wind and solar farms to water treatment and biomass plants. These can benefit from predictable, long-term, partly or wholly inflation-linked cash flows.
‘SIXTH MASS EXTINCTION’
Why are the stakes seen as so high? Environmental campaigners claim that, due to climate change, the planet could be facing a Mass Extinction Event for only the sixth time in the last 540m years. A mass extinction is characterised as the loss of three quarters of existing species in a geologically short period of time.
If climate change isn’t countered, campaigners claim, the effects on nature and society could spiral out of control. Rising sea levels, desertification, wildfires, extreme weather, water shortages, crop failure, disease and a rise in conflicts are all potential outcomes.
Due to human activity, in particular the burning of fossil fuels, the Earth’s average surface temperature has risen by around 1.1 degrees Celsius since the late 19th century. Globally the last four years have been the hottest on record and the 20 warmest years in history have occurred in the last 22 years.
Globally, species are going extinct 1,000 times faster than the background extinction rates typical of Earth’s past due to climate change, over-exploitation of natural resources and the introduction of invasive alien species.
The average rate of vertebrate species loss over the last century is up to 100 times higher than the background rate. In other words without climate change it would have taken up to 10,000 years for the same number of species to disappear.
CLIMATE RELATED DISASTERS RISING
The number of extreme climate-related disasters, including extreme heat, droughts, floods and storms, has doubled since the early 1990s, with an average of 213 events occurring every year from 1990 to 2016.
The American West is experiencing its worst mega-drought in more than 500 years according to academics at Columbia University: only three previous mega-droughts – in the late 800s, mid-1100s and late 1500s – were worse than the current period.
As well as costing the insurance industry billions in catastrophe claims these events harm agricultural productivity, contributing to shortfalls in food availability causing food price hikes and income losses that reduce access to food.
DEPLETING EARTH’S RESOURCES
Research organisation Global Footprint Network estimates that demand for natural resources on top of carbon emissions means that last year we reached Earth Overshoot Day – the date when our annual demand on nature exceeds what the planet’s ecosystems can regenerate – on 1 August.
Overshoot Day has been arriving ever earlier: in 1970 it was 29 December, by the 1980s it was November and by 1995 it was in September.
As the deficit grows, ecosystems are lost meaning less clean water, soil and air, which has devastating knock-on economic and social effects.
People across 51 countries and territories are facing crisis levels of acute food insecurity or worse. The number of people affected just between 2015 and 2017 has risen by 50% to 124m.
The risk of extreme weather hitting several major food producing regions of the world simultaneously could triple by 2040 making it a one in 30 year event rather than one in 100 years.