#18: To All Long-Term Investors

No doubt you are already assessing the portfolio for hidden climate risk, right?

That's a great first step. But are you also asking yourself if more awareness and shifting investments from brown to green will really protect your portfolio long-term, let alone the planet?

If not, we argue that your strategy needs a facelift!

And Here's Why

By now everybody knows, environmental and social problems pose rapidly growing investment risks that demand urgent attention. Every week another report confirms yet another aspect of the growing risk landscape.

Most recently, NASA found that our planet is warming much faster than anticipated. The US National Bureau of Economic Research concluded that the economic damage from climate change is six times greater than earlier projections.

These findings underscore a critical point: Despite more reporting, better data and a higher level of awareness generally, things are getting worse.

Are You Cutting Edge Yet? A Quick Checklist

We categorize firms into three stage: early stage, advanced, cutting edge, as follows:

Early stage

• Employ science-based scenario analysis to better estimate climate risk

• Leverage AI technologies to assess the financial impacts of climate change on companies

Advanced

• Expand strategies to include biodiversity and other SDG problems, in addition to climate change.

Cutting Edge

• Truly progressive actors start to ask themselves if broader systemic issues need to be addressed. These are typically the kind of firms we work with. They are truly ahead of the curve and will be the ultimate winners.

You might say, ok, but what are these broader systemic issues these firms are looking at. Fair enough ...

The Root of the Problem: Structural Systemic Risks

At the heart of climate change and other problems lies a fundamental flaw in our economic and political systems. These systems fail to hold companies fully responsible for greenhouse gas emissions and other environmental impacts. In competitive markets, companies that try to voluntarily reduce their emissions often face higher costs, which can drive them out of business. This systemic issue is not just the root cause of climate change but also other major global challenges.

As long as we don't address these systemic issues, all risk management efforts will fall short. They won't work at the scale necessary to protect investment portfolios, businesses, and society as a whole.

We will pause here today as this is such an important point. It needs to be fully understood and digested before it makes any sense to move on.

🔭 Looking Ahead

Next week, we will discuss how System Change Investing can help to mitigate structural systemic risks. How by aligning profitability with sustainability, SCI offers a pathway to a more secure and sustainable future for investors and society alike.

Stay tuned as we explore how SCI can help to transform your investment strategy, making it not just truly resilient but also a driver for the wider change we need for business and society.