Our investment professionals share and challenge each other’s views, creating a diverse marketplace of ideas for the Wellington Blog.
While the United Nations Climate Conference of the Parties (COP26) ended with mixed results, we believe the outcomes are more positive than the media has portrayed. The resulting Glasgow Climate Pact will serve as a framework for accelerating coordinated action to limit global warming and avoid the worst effects of climate change.
More ambitious top-line targets: The Parties agreed to limit global temperature rise to 1.5°C (below the original 2°C goal) and reduce emissions by 2030, rather than 2050.
Going beyond CO2: Focus has expanded to the reduction of methane, a much more powerful warming agent than carbon dioxide.
Phasing out coal: The Parties agreed that unabated coal must become a smaller percentage of the global energy mix sooner than previously agreed. For the first time at a COP event…
Sea-level rise (SLR) is the climate risk that perhaps most captures the imagination. Pop culture has long depicted doomsday scenarios of ocean inundation and, increasingly, real-life disasters like 2012’s Hurricane Sandy and chronic flooding in coastal cities from Bangkok to Miami have turned fiction into reality.
Thankfully, climate models show most catastrophic impacts of SLR to be far off, relevant for the end of this century and beyond. However, given the extreme risks that even minor changes in SLR pose, we expect spending on adaptation to…
Four climate specialists, including Director of Climate Research Chris Goolgasian, discuss where they perceive market wrong-headedness on climate change. Learn how they look beyond consensus to uncover climate-related opportunities for our clients.
In a June 2021 white paper, A source-based approach to managing inflation risk, co-authored by our colleague Adam Berger, we laid out what we believe are the five most likely sources of higher inflation over the coming decade. One of them was climate risk or, more specifically, the potential for input price shocks caused by the ongoing trend of global climate change. Since this inflation source may not be on many investors’ radar, we’d like to revisit why we think climate change is inflationary and suggest strategies to help reduce the threat to client portfolios.
In light of some notable events over the past several weeks — China’s domestic regulatory actions, the Biden administration’s recent six-month milestone, and the US foreign policy debacle in Afghanistan — I thought now would be an opportune time to provide my latest take on the state of US-China relations.
As many of my colleagues have observed, the recent regulatory moves by Beijing are mainly China-focused and not driven by global geopolitics or US policy shifts. That being said, there are some key takeaways here from my broader geopolitical perspective. For example, I think policymakers in both China and the US have begun to view their domestic policy decisions through the lens of the rising “great-power” competition between…
Our ongoing climate research shows that various global regions and asset classes will face significant and growing climate risks in the coming years. We hold the view that asset allocators seeking optimal long-term results should thoughtfully factor climate change into their structural investment planning. In fact, we believe allocators can build climate resilience into their portfolios today to pursue the potential return opportunities arising from climate change.
While some of the risks associated with climate change may seem too far off to matter right now, many of the environmental, social, and economic ramifications are already apparent. We believe now is the time for allocators to begin thinking about how to incorporate climate change and related considerations into their strategic asset allocation (SAA) plans.
Record-setting heat, floods, wildfires, and hurricanes have repeatedly wrought massive, costly destruction and ensuing…
As part of our recent climate investment roundtable, Director of Climate Research Chris Goolgasian and Global Industry Analyst Alan Hsu discuss why and how the physical and transition risks of climate change are driving investment opportunities. They also share insights on why they believe solutions that help society adapt to the effects of climate change are undercapitalized and could see significant upside in coming years.
US utilities stocks have trailed the broader equity market by a wide margin so far in 2021, having just posted their poorest first-half relative performance since 1997. In fact, the underperformance has become chronic: The sector has now lagged the market by roughly 40% over the past three years – its worst multiyear stretch going back to the tech bubble of the late 1990s.
Neither I nor any other member of the utilities team here has seen anything like this during our careers. So what gives? Utilities were neither COVID “winners” nor “losers” in 2020. And then the US stock market’s persistent “seesawing” between the value and growth styles has left utilities out of this year’s market gains. Increased inflation and fears of higher interest rates have also hurt the group to some degree in recent months.
But there is a silver lining. In the wake of their underperformance, US utilities have been trading at a big discount to…
The outperformance over the past 18 months of some “green” equities, or those with direct or obvious climate solutions (such as renewable energy), has left investors wondering whether climate transition risks are already priced in. A new study by MSCI finds that transition-risk pricing differs by region and by a company’s greenness, as measured by its greenhouse gas (GHG) emissions and proportion of “green” revenues.1 Even after normalizing for industry effects, equities with low GHG emissions and a higher share of revenues from “green,” low-carbon activities commanded higher valuations than equities with more “brown,” high-carbon-intensity revenues.
While we recognize the strong performance of certain green equities, we believe the lack of reliable emissions data makes it…
Wellington’s Climate Research Team works with Woodwell Climate Research Center to integrate climate science into the investment process for our impact strategies. We increasingly leverage reports, quantitative models, and investor tools to identify impact assets with exposure to these risks and companies whose products we believe minimize the human and environmental toll of climate-related events.
One key climate-related trend that overlaps with impact investing — particularly our clean water and sanitation theme — is water scarcity. We believe chronic water shortages in many regions are a critical issue. Solutions to prevent or alleviate water scarcity will likely attract more investor attention and trigger significant capital spending as governments and public/private partnerships invest in water infrastructure and technology. And because water scarcity is still underappreciated by the market, impact investors have opportunities to…
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