Climate Change Influences Decisions Of Major Investors

The participants at this year's annual meeting in Davos will try to build on the Paris climate agreement and to further explore how governments and businesses can work together to reach the target set in December at bellow 2°C limit of global warming.

The world's political and business elite gathering to the annual World Economic Forum's (WEF) conference will focus on the topic of climate change. The latest Global Risks report by WEF has came to the conclusion that global warming is the biggest single threat to the world economy.

In more than a decade, this is the first time when experts ranked global warming as the most dangerous issue on the list of risks. The investor community takes now seriously this risk and tries to understand how the financial markets could be affected by the effects of climate change.

However, not every investment committee and board is well acquainted with climate related risks, according to a recent Mercer study. This suggests that many investors are poorly positioned to address the topic and that the investment sector is not fully prepared to find solutions.

Getting caught off guard can lead to potential losses. Only anticipating well the new changes can help investors to prepare for their impact by creating new policies in advance.

Among mainstream investors, many are starting to take steps in this direction, according to The Huffington Post. For example, the Swedish asset management firm Öhman conducted a comprehensive portfolio carbon footprint study in order to better assess their portfolio's exposure to carbon risk.

The global economy is affected in a great measure by the necessity to limit global warming below two degrees Celsius, as the global leaders participating at the conference in Davos have understood. This is an urgent matter and the major investors are concerned about the future.

This new reality will ultimately lead to climate-smart investment strategies. As risks grow and are more difficult to mitigate, any different approach could invite real danger into investment portfolios.