By Mike Freer, of BWCI Group
FOR those who like to see their doom and gloom in biblical proportions, one of the four horsemen of the apocalypse was Plague. Covid-19 would fit the bill, but we have a vaccine.
However, we still face the consequences of climate change – a bigger long-term problem than Covid-19, and not one which has a vaccine.
COP26 made steps in the right direction but left a yawning gap if global warming is to be limited to 1.5°C. COP27 was generally considered a disappointing summit. COP28 was only last month and, while some commentators regarded it as a real success, others stated that there are clear challenges and limitations that we must keep working to address.
But what does this all mean for investments and pensions saving over the year ahead?
It is helpful to single out climate change. The previous decades have seen major shorter-term problems such as the financial crisis, AIDS, the dot.com bubble, the nuclear disaster at Fukushima and, more recently, the war in Ukraine.
It is helpful to concentrate on what is different, longer term, and which has potential consequences that dwarf most others. Pension saving, in particular, is a long-term strategy.
Equity investments are common investments in all types of pension scheme. We might expect investments in low-carbon sectors, such as technology, to fare much better than those in fossil-fuel extraction, for example.
Bond assets are also common pension plan investments, and government bonds may benefit from their safe-haven status.
Property investment frequently appears as a pension scheme asset, and those buildings that are most exposed to extreme weather events can expect their value to be diminished.
The relevance of pension scheme investments in reducing a member’s carbon footprint was highlighted by the Make My Money Matter initiative, where suitable changes to a member’s pension investments were calculated as having about 27 times the effect of becoming a non-flying vegan.
The message for 2024 is similar to that of 2023. We need to get serious about investment, to mitigate and protect against, the effects of climate change. The sooner we start, the better our outcomes are likely to be.