It's common knowledge that climate change has devastating consequences for the natural world. The potential monetary impact on the international economy, businesses, and markets is becoming increasingly apparent. Over the course of this century, temperatures might climb by more than 3 ° C. over pre industrial levels if drastic action is not taken to reduce carbon emissions. This would be enough to cause a 25% drop in world GDP.
Climate change will undoubtedly become a central aspect of company decision-making in the coming years, given its direct danger to world Gdp and affluence. Moreover, as international conflicts continue to disrupt supply chains and drive up the price of fossil energy, geopolitical risk highlights the need for long-term, supply-chain sustainable energy solutions. This opens the door for renewable energy to play a role in countries' efforts to achieve energy independence.
Multiple options for green investments are growing.
These tendencies indicate that investors should incorporate environmental concerns into their long-term and short-term plans. Moreover, long-term growth prospects may present themselves to businesses that adopt climate-friendly strategies, processes, and offerings.
Fortunately, the number of potential climate-related investments has grown as the magnitude of the approaching environmental problem has become more apparent. As a result, investors may help the world and their portfolios by making ESG (environmental, social, and governance) decisions that capitalize on the development of cleaner economies while mitigating the risks posed by climate change.
Eco-investing ABCs
Avoid.
This strategy dates back to the beginnings of ESG investing and entails avoiding investments in firms or industries that engage in unethical actions. Businesses that utilize a lot of natural resources should have less of an impact on your portfolio, and those that produce a lot of carbon dioxide should be avoided. The dangers are growing.
Benefit.
This means putting money into businesses of all types that set an example regarding their commitment to sustainable practices and governance and making those commitments transparent through environmental, social, and governance (ESG) indicators and transparency. Businesses can show how their procedures conform to regulations.
Companies can save money by reducing their exposure to reputational and regulatory issues. In addition, environmental responsibility might boost these businesses' bottom line, making them more attractive to investors.
Contribute.
The last category is companies and sectors that want to reduce their environmental impact. Smart grids, e - mobility, new approaches to agricultural production, forest management, and water purification are all examples that come to mind. Renewable energy is a good illustration. From 2009 to 2020, the price of solar energy decreased by 90%, while the cost of utility-scale wind energy decreased by 71%, making both technologies cost-competitive with traditional power plants. Renewable energy sources become even more appealing in the face of geopolitical tensions. Green energy, whose prices have dropped dramatically, becomes more competitive as fossil fuel prices rise.
Decide how much lose you can take
Your investing decisions may be affected by your desired rate of return and your level of comfort with potential loss. Therefore, environmental investments should be evaluated in the same way as any other investment strategy: your portfolio and your long-term financial objectives.
