Portfolio | Global greening may cost dinosaur industries
Growing international accord on climate change signals tougher regulation which will harm competitiveness of polluting industries
Climate change may not have won over all its doubters, but it is gaining traction as a global policy initiative, a key risk factor and an emerging investment theme, according to analysts at Blackrock Investment Institute.
“Even if you are sceptical of global warming and its causes, we think it is prudent to appreciate the regulatory momentum behind it,” Blackrock analysts wrote in a report circulated last week. “Asset prices are not immune to regulatory efforts to mitigate climate change.”
The insurance industry was one of the first to grapple with environmental risk. After Hurricane Katrina ravaged New Orleans and the US Gulf in 2005, regulators forced insurers to increase their capital reserve levels to ensure resilience in the face of future catastrophes, while new capital has demanded improved data and risk modelling. That approach is now being extended beyond the sector.
After a World Economic Forum survey rated extreme weather, natural catastrophes and failure of climate change adaptation among the top 10 global risks this year, a new framework to reduce carbon emissions is expected to emerge from the United Nations Climate Change Conference in Paris next month.
“Policymakers are targeting fossil fuel producers and energy-intensive industries with tough and costly new rules. They are supporting technologies and companies that boost efficiency and/or harness renewable energy sources,” Blackrock analysts wrote.
Blackrock also says regulators are likely to intensify their oversight of offending industries after incidents like the Fukushima nuclear disaster and the Volkswagen emissions control cheating reverberated through the economy.
