Other carbon-intensive industries such as steel, chemicals and engineering could also be impacted by new and emerging climate legislation, a move to alternative forms of energy such as wind and solar power and a shift in global demand for fossil fuels over the coming years.
Retail investors need to ensure that their portfolios do not run the risk of stranded assets.
They should look closely at the companies in their portfolios and raise the issue with their fund managers, asking questions around investing in climate resilient vehicles and renewable energy sources.
They should also find out how transparent are the companies in which they are invested when it comes to disclosing information on their internal climate policies, including moving to a low carbon operating environment.
If they are in any doubt, a financial adviser can help identify opportunities for more sustainably-focused investments. They could also engage with companies directly about reducing portfolio exposure to carbon-intensive assets.
Vote your shares
Retail investors should not under-estimate - or fail to use - the power they wield through voting rights. This is a great way for investors to make their voices heard on a number of corporate initiatives, including climate resolutions.
In recent years, we have seen an unprecedented number of climate-related resolutions at major oil and gas companies as well as companies in related sectors.
These range from disclosure on how the company is addressing climate change in its overall operations to how much information they are disclosing on reallocating their investments to renewable energy.
A key component of the Paris Climate Agreement includes ensuring that financial flows are consistent with the 2-degree target. Meeting this target requires a global effort to shift capital from carbon-intensive to low-carbon industries, and investing in energy-efficient strategies.
So companies need to be transparent about how they intend to achieve these goals in order for investors to make better-informed decisions.
Shareholder activism is a way for investors to effect change and encourage more responsible business practices. This means investors could invest in companies that they feel do not exercise ESG oversight to try to bring about changes.
Of course, not all shareholder resolutions on environmental issues and political lobbying will win majority support; nonetheless, vote levels of 20 per cent or higher are seen as a strong signal to company management that a significant bloc of shareholders is concerned about such issues, potentially compelling them to take action.
Metrics can help
Performing a carbon footprint analysis can be a useful exercise for investors who want to understand how climate change is affecting their portfolios. A carbon footprint analysis shows a portfolio’s carbon emissions based on the ownership it has of the underlying investments.
