How climate change will impact your portfolio

Morningstar UK  |  20/04/2017Text size  Decrease  Increase  |  
email_fwd

Jeremy Grantham: To scale some of these issues, $9 trillion to decarbonize electricity completely; $6.5 trillion toward energy efficiency retrofitting buildings. The global revenue of advanced energy industry throwing all these together is currently $1.4 trillion a year, twice the airlines and larger than apparel and growing in America at 5 per cent a year three times the underlying GDP and worldwide at over twice the rate.

The uncertainties of what you ignore at your portfolio's peril. Will there be carbon taxes everywhere and if there are, what are the potential for stranded assets, particularly in the oil industry. And I'm happy to pause for breath.

Jon Hale: So, it's really, Jeremy, a race between resource depletion that's exacerbated by climate change, and I mean, the human's ability to develop through technology and renewable energy the solutions?

Grantham: That's exactly right. And by the way, if we were well-behaved individuals, if we actually lived up to our potential as a species, we would have no problems. We could do away with global poverty, we could have the population gracefully decline over 200 or 300 years back to 2 billion to 3 billion and everything would work out fine. It's because we are not well-behaved. It's the gap between what we're capable of doing and how American alleged democracy works where it is basically owned by large corporations and notably the fossil fuel industry.

Hale: You mentioned the gap. Do you have any sense of the gap between the numbers you showed about what's needed from an investment standpoint and what's actually being invested and available to be invested, is it a private market's, is it capital market's issues, or is it something that takes public investment?

Grantham: At the moment, not only is the investment flow inadequate, but actually the demand for the investment is inadequate. In other words, the plans are not being put on the table. Those that are kicking and screaming tend to be able to raise the money these days. And for a very good reason because many of them have a perfectly decent return associated with them. In my foundation, which has taken virtually all my income for the last 15 years and has 80 per cent of my capital, engages 20 per cent of its money in mission-driven investing. And so, we have a very lively interest in these issues. And we expect to make a very handsome return investing in renewables and efficiency in particular.

Hale: You mentioned carbon tax as one of the uncertainties investors ought to be paying attention to. It seems like that would address demand issues. We got a proposal recently floated by some Republican ... statesmen, I guess, I would call them since they are politicians who are no longer in office, recently and seemed like a reasonable approach and kind of a standard approach to reducing our carbon footprint. How important do you think something like that is to solving the problem?

Grantham: I think a historian 30, 40 years from now looking back would see that if it happened as a watershed event, a decent carbon tax starting at $25 and rising to $100 a ton would change the world as we know it. And if you took that money, it's a real revenue raiser, and rebated it equally to every American or every European, it's a very cost-effective way of solving this problem and bringing on--encouraging improvements and the move to solar cars and so on, sorry, electric cars.

Video Archive...

Did lack of transparency cause the financial crisis?
19/09/2017  Ten years after the collapse of Northern Rock, Andy Agathangelou tells Emma Wall that greater transparency in financial services could ward off a second global financial crisis.
Are we facing another Global Financial Crisis?
19/09/2017  Ten years on from the collapse of Northern Rock, Dan Kemp tells Emma Wall how there are echoes of the crisis in markets today.
Wild ride in FY17 and more to come - part 2
13/09/2017  Morningstar's Peter Warnes discusses how you may want to position your portfolio in FY18, as geopolitical storms continue to rage and safe-haven assets feel the effects.
Wild ride in FY17 and more to come - part 1
12/09/2017  Cost-out remained a dominant theme for large-cap Australian companies in FY17, and looking ahead to FY18, they should be clearer on cap-ex, says Peter Warnes, Morningstar’s head of equities research – Australasia.
Deeper demand driving these pooled investments
31/08/2017  Listed investment trusts are beginning to take off in Australia, but exactly what are they and how do they differ from listed investment companies and managed funds?
Upbeat Woolies result tempered by Big W
30/08/2017  Woolworths' category-topping FY17 result driven by surprisingly strong sales, even as sector faces tougher times ahead, explains Morningstar's Johannes Faul.
Coke Amatil 1H17 result leaves margin of safety
28/08/2017  A challenged earnings announcement from Coca-Cola's Australian-listed business was largely expected, but downside is already priced in and improvements are expected in FY18.
How slashed Telstra dividend affects our outlook
23/08/2017  Brian Han remains reasonably positive on the telco giant even after some disappointments in the FY17 earnings announcement.
Earnings season FY17 mixed bag so far
18/08/2017  Aside from a few high-profile earnings guidance misses, large-cap stocks are doing okay as FY17 reporting season passes halfway, says AMP chief economist Shane Oliver.
Rio Tinto posts mixed result for 1H17
10/08/2017  An interim result of US$3.9 billion in net profits after tax for one of the world's largest mining companies was positive but slightly weaker than expected, even alongside a record dividend, explains Morningstar's Mat Hodge.
Kerr Neilson on why global investment exposure is key
07/08/2017  There are two types of investors, regardless of market noise, imputation credits, diversification approaches and market indices, says the managing director of Platinum Asset Management.
Finding fixed income opportunities in new paradigm
02/08/2017  Slowing economic growth in the US and parts of Europe emphasises the need to carefully select credit opportunities, says Vincent Reinhart, chief economist, Standish Mellon Asset Management.
Telstra won't be blown away by headwinds
17/07/2017  While it faces what Morningstar equity analyst Brian Han describes as a whirlwind of negatives, he suggests investors shouldn’t hang up on Telstra.
The home-truths of investing
12/07/2017  Look for companies that sit outside the cycle; heed the lessons of history; and remember the power of compounding, says Bennelong's Neale Goldston-Morris.
Self-managed super is not Do-it-yourself
03/07/2017  There are a few common pitfalls in running a self-managed super fund that mean trustees shouldn't go it alone entirely, says BT Financial Group's head of financial literacy, Bryan Ashenden.
Investing to protect on the downside
30/06/2017  There are investment strategies you can adopt to mitigate volatility-linked fear and uncertainty in markets, explains Roy Maslen, chief investment officer – Australian equities, AllianceBernstein.
Don’t overdo benchmark consideration
28/06/2017  Being benchmark agnostic is the most effective approach to fixed income investing, according to Anujeet Sareen, portfolio manager, Brandywine Global.
Factor-based investing using ETFs
26/06/2017  Investors should consider style-exposures--such as value, defensive or yield-- they would like in their portfolios, explains Jonathan Shead, head of portfolio strategists – Asia Pacific, State Street Global Advisors
Volatility plays to active manager strengths
--  The climate of political volatility in the US holds important implications for investors and the funds they invest in, particularly around Donald Trump's ability to pass legislation through Congress, says Pimco's Libby Cantrill.
Is the FTSE 100 Facing Another Market Crash?
16/06/2017  Ten years on from the pre-crisis FTSE 100 high, Morningstar UK's Emma Wall examines how UK stocks have fared