Four ways investors can act on climate change

As scientists increasingly warn about the negative impacts a changing climate could have on our global ecosystems, economies, and human livelihoods, more investors are thinking about how climate change-related environmental and social risks could affect their portfolios.

But it’s not necessarily all doom and gloom. By playing a role in tackling climate change and aiding in the transition to a lower-carbon economy investors can aim to have positive social and environmental impact.

Here are four significant business risks associated with climate change and opportunities for investors.

Investors could also benefit from investing directly in lower-carbon technologies, such as renewable energy, electric vehicles, battery storage, hydrogen power, and carbon-capture utilization and storage. Such industries may benefit from increased policy support and rising demand as the world transitions to less carbon-intensive energy sources.

For investors, you can consider a company’s environmental and social priorities, alongside traditional financial metrics. This may include a company’s climate disclosures, carbon footprint, use of natural resources and waste management practices. You can also evaluate social and governance criteria, such as operational efficiency and employee safety, as well as diversity of the board of directors and senior management.

By investing in companies from a best-in-class environmental, social, and governance (ESG) perspective, you may be able to avoid exposure to the worst offenders who may face negative financial, reputational, and legal consequences.  

For those looking to bring a sustainable approach to their investing strategy, there’s more than one way to go about it. Discover individual companies vying to make a difference in sustainable funds or thematic investing. There are plenty of mutual funds and ETFs that reflect ESG and socially responsible investing (SRI) principles, as well as investing themes that highlight specific economic and environmental trends, from innovative vehicles to clean energy and water.

Investors can also explore invest in companies with sound environmental policies or explore “green bonds”, whose proceeds have a stated purpose that will seek to promote climate mitigation activities or other environmental sustainability projects.

The most important thing may be ultimately realizing there is potential for action. A changing climate is one of the defining issues of our time, posing significant risks to global health, food, water, and energy security. It also presents a significant opportunity for investors to capitalize on the magnitude of the transition to a lower-carbon economy. 

Article Footnotes

¹ Report: Warmer planet will trigger increased farm losses | Cornell Chronicle, January 18^th, 2024, https://news.cornell.edu/stories/2024/01/report-warmer-planet-will-trigger-increased-farm-losses#:~:text=For%20every%201%20degree%20Celsius,net%20farm%20income%20plummets%2066%25.

The source of this Morgan Stanley article, Four Ways Investors Can Act on Climate Change, was published on October 10, 2024.

CRC # 4073675 12/2024