In the wake of the climate change agreement struck in Paris earlier this month, investors should start preparing for the transition to a low carbon economy, says Colonial First State Global Asset Management (CFSGAM).
COP21 (the 21st Conference of Parties to the UN Framework Convention on Climate Change) saw countries change their target from 2 degrees Celsius to 'well below' 2 degrees, with an aim of 1.5 degrees, said CFSGAM's head of responsible investment, Pablo Berrutti.
"While this seems academic, the importance of acknowledging that 2 degrees Celsius was not a ‘safe’ target has enormous significance and increases the urgency for action," Mr Berrutti said.
At no time during the past 21 years of climate negotiations have investors been able to have greater confidence that action on climate change is "really happening" this time, he said.
"While this should be positive for low carbon investments as it signals a reduction in regulatory and market risk, the largest investment implications sit with the largest part of most investors’ portfolios – bonds and listed equities," Mr Berrutti said.
"As the market failure is corrected, the playing field will be tilted from high to low carbon. This will impact all sectors in different ways.
"The nature of correcting market failures means passive portfolios are particularly vulnerable," he said.
Mr Berrutti listed a number of actions that investors can take immediately, including:
"Perhaps the biggest challenges for investors will be blocking out short-term noise and instead focusing on applying the strategies needed to achieve long-term investment objectives in what are sure to be extraordinary times ahead," Mr Berrutti said.
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