Climate change is causing shifts in the regulatory environment and potentially has macroeconomic impacts which will affect the value of the Fund’s investments. These pose significant investment risks and opportunities with the potential to impact the long-term value of all types of investment. Climate change is a systemic risk with potential financial impacts associated with the transition to a low-carbon economy and physical impacts under different climate scenarios. Transition will affect some sectors more than others, notably energy, utilities and sectors highly reliant on energy. However, within sectors there are likely to be winners and losers which is why divesting from and excluding entire sectors may not always be appropriate.
Risks and opportunities can be presented through a number of ways and include:
- • Physical impacts – damage to land, infrastructure and property due to extreme weather events, rising sea levels and flooding
- • Technological changes - technological innovations such as battery storage, energy efficiency, and carbon capture and storage will displace old technologies with winners and losers emerging
- • Regulatory and policy impact - financial impairment due to policy and regulation changes such as carbon pricing or levies, capping emissions or withdrawal of subsidies.
- • Transitional risk - financial risk associated with the transition to a low-carbon economy, also known as carbon risk. It may entail extensive policy, legal, technology, and market changes to address mitigation and adaptation requirements related to climate change, creating investment opportunities as well as risks.
- • Litigation risk - litigation is primarily aimed at companies failing to mitigate, adapt or disclose.
More details of SYPA’s approach to these issues is available in the following documents:
View the Climate Change Policy here
View the Carbon Audit here
As in other areas we work through the Border to Coast Pensions Partnership to deliver our objectives in this area.