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Climate change picked to create big investment headwinds

Kristen Le Mesurier

Investors have been encouraged to consider the effects of climate change as a significant headwind to portfolios in the future, as investments remain at risk of physical and financial impacts.

In AMP Capital’s latest analysis, Kirsten Le Mesurier, portfolio manager of the multi-asset group, encouraged investors to assess the level of risk climate change possesses to their portfolios, regardless of their personal views on the debate.

“Some investors don’t believe in climate change and believe that any consideration of it in an investment process means sacrificing return,” she wrote.

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“It should be considered as part of investment decisions.

“Not considering these impacts would mean ignoring the potential impact on share prices and investment returns.

“Where an investor arrives on the climate change spectrum is very relevant to portfolios,” she said.

According to Le Mesurier, climate change will likely impact economic growth in two key areas moving forward, namely the physical impact and financial impact.

She recommended investors consider the effect changing weather patterns and an increase in regulation to lower the carbon economy will likely have on investments in areas such as agriculture commodities.

Ms Le Mesurier said future value may be found in diversifying allocations to include companies dedicated to low carbon emissions, clean technology, sustainable farming, community infrastructure and green bonds.

ESG a focus for investors

Her words come as a new data from The US Forum for Sustainable and Responsible Investment released last week revealed environmental, social and governance (ESG) investments in the US has quadrupled from $3 trillion of all professionally managed assets in 2018 to $12 trillion today.

This represents one in four dollars of the total US assets under professional managements.

According to the latest KPMG data released in August of last year, this trend is reflected amongst Australian investors, as responsible investment constituted $866 billion in assets under management as of 31 December 2017.

This equates to 55.5 per cent of total assets professionally managed in Australia and is up 39 per cent from $622 billion the year prior.

This trajectory is predicted to continue in 2019.

Climate change picked to create big investment headwinds
Kristen Le Mesurier
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