Upcoming stock markets: why investors should pay attention to COP26 climate talks
Here’s just one: Experts warn the climate crisis could trigger the next financial crisis.
Break down: It’s no secret that extreme weather events linked to higher temperatures already impose significant economic costs. But the problem will only get worse in the years to come. Companies could see their assets destroyed or end up with declining or worthless portfolios as government policies change, as well as investor and consumer attitudes.
This is a debate that is already being played out in the oil industry. Currently, there is a demand for almost 100 million barrels of oil per day. But to limit warming to 1.5 degrees Celsius and avoid the worst effects of the climate crisis, the United Nations and partner scientists have warned that the world must “immediately and sharply” reduce its production of fossil fuels.
If production is reduced and demand decreases as money is invested in renewable energy sources, what happens to the value of the vast network of companies and infrastructure dedicated to pumping gas? soil oil?
Investment in the sector is starting to focus on shorter-term projects, a consequence of uncertainty about the future.
“People try to get their money back earlier, so long-term dislocation becomes less risky for them,” Nikos Tsafos, energy and geopolitics expert at the Center for Strategic and International Studies, told me. “They don’t make 10 or 20 year bets.”
Yet there is growing concern that investors may not know how sensitive a company’s balance sheet is to the climate crisis, triggering a push for more disclosure.
See here: More than 70% of some of the world’s largest issuers did not disclose the effects of climate risk in the 2020 financial statements, according to an analysis by Carbon Tracker, a London-based think tank.
“Without this information, there is little way to know the extent of venture capital or whether funds are being allocated to unsustainable companies,” said Barbara Davidson, lead author of the report.
The proposed legislation would apply to many of the largest companies listed on the London Stock Exchange, banks and insurers, as well as private companies with more than 500 employees and £ 500million ($ 690million) of sales.
Watch this space: Business lobbyists from countries around the world call on negotiators at COP26 to discuss a way to streamline disclosures so companies can work within a cohesive framework.
“Almost all of our members run businesses that operate around the world,” the groups said in a statement last week. “We support better alignment of climate change disclosure standards, developed with input from industry, investors and standard setters.”
Is the Fed finally ready to pull the trigger?
Inflation is rising at the fastest rate in three decades and showing no signs of slowing anytime soon.
Step into the Federal Reserve, which might be ready to take a step after months of stressing that it didn’t want to take the plunge.
The latest: The Fed’s favorite measure of inflation in the United States, the personal consumption expenditure price index, showed on Friday that inflation had jumped 4.4% year-on-year. ‘in September, its biggest jump since 1991. Excluding food and energy costs, prices climbed 3.6%.
This could strengthen the Fed’s resolve to act at its meeting this week.
Investors are betting that after months of speculation, the Federal Reserve will start canceling bond purchases aimed at helping the economy during the pandemic. They expect asset purchases to be cut by $ 15 billion each month, with the reduction process ending by June.
“A [Wednesday] The announcement of the reduction seems certain, “ING strategists, including James Knightley, the bank’s chief international economist, said in a recent note to clients.
The big debate is now over when the Fed could start raising interest rates.
“The next few months are critical to assess whether the high inflation figures we have seen are transient,” Fed Governor Christopher Waller said earlier in October. “If monthly impressions of inflation continue to be high for the remainder of the year, a more aggressive policy response than a simple cut may well be warranted in 2022.”