CONTRIBUTORS
Ben Meng, Ph.D.
Chairman of Asia Pacific,
Franklin Templeton
Anne Simpson
Global Head of Sustainability, Franklin Templeton
This article was originally published in Journal of Investment Management (JOIM) in February 2024. The piece appears in JOIM’s “Insights” section, which offers unique perspectives from the leading minds in investment management.
Abstract
The missing “I’s” of information and incentives have restrained the potential of the capital markets in previous decades to respond to the growing demand for climate solutions. Progress on both fronts in recent years, however, is moving us rapidly beyond an inflection point in climate investing to its turning point. In this article, the authors build upon previous work to examine this progress as well as analyse the potential for an enhanced return—a “greenium”—from investments in the transition to a low-carbon economy.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. Investors considering a strategy which focuses on investments related to reducing carbon emissions, should consider that changes to the regulatory landscape, physical climate related events, and market perceptions could have material adverse effect on such investments. Potential challenges to investments in renewable energy assets include cost-effectiveness, performance and reliability of renewable energy technology, changes in weather and climate and availability of government subsidies and incentives, as well as the potential for unforeseeable disruptive technology and innovations. Regulatory controls currently exist on investments in the energy, carbon dioxide and equivalent reduction emissions industries at the national, local, and international levels. Adherence to such controls, as well as unforeseen changes to regulation on such industries, due to shifting political landscapes or resulting from environmental events, will likely have impacts on climate related investments. Currently, there is not a universally accepted Environmental, Social, and Governance standard, as such the manager may apply (or not apply) standards and considerations in their sole discretion. In the future, the various regulators may choose to implement more universal standards which could have an impact on climate related investments.
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