- 2 Dec 2021
- Reading time
- 4 minutes
For around twenty years, climate change has been a concern; recent climate events have been marked by phenomena such as rising average temperatures in many regions, rising sea levels, melting ice sheets in the polar regions and many large glaciers, water availability, and the frequency of extreme weather events.
Climate change's physical effects can have a direct influence on financial market stability. Extreme weather changes, for example, might have a negative impact on the functioning and business operations of particular energy securities such as windmillpowerstock. With the consequences of climate change in mind, every government in the world has been putting all resources in place to mitigate it.
Among these plans is advocating for carbon neutral stocks for investors. Below, we have provided further enlightenment about carbon neutral stocks for the purpose of clarity.
1. Climate change stocks
Climate change is a multi-faceted, complicated process that will have a wide range of consequences for the global ecosystem. It poses an inherent danger to human civilization, as it is mostly driven by emissions of carbon dioxide and other greenhouse gases produced by agriculture and industry. Many countries throughout the world have declared efforts to lower their carbon footprints and cut greenhouse gas emissions.
Climate change investing falls under the category of environmental, social, and governance (ESG) investing, which aims to achieve both beneficial social and financial outcomes. In recent years, institutional asset managers have carved out a larger niche for investors seeking more ethical means to develop their money.
There are various choices for investors who want to build a climate change-themed portfolio. Renewable energy investments and companies with green energy are two of the most well-known paths. The utilization of renewable energy is critical to phasing out the usage of fossil fuels. Natural energy sources such as the wind and the sun may supply cheap electricity without polluting the environment or emitting carbon dioxide. Companies that have significant green energy programs might also be a good fit for a global warming stock. These are businesses that have made significant investments in carbon offsets, sustainable materials, meat replacements, electric cars, and other low-carbon technology.
2. Carbon credit stocks
Carbon credits have grown in popularity during the last five years. Carbon credits are designed to encourage businesses to decrease emissions in a cost-effective manner over time. Carbon credits are government-issued permits for polluting enterprises such as utilities and cement makers to emit carbon and other greenhouse pollutants. Polluting companies can buy carbon credits that allow them to release a set quantity of greenhouse gases each year. Polluters who are more successful in lowering their emissions might profit by selling their residual licenses to others.
In 2005, the European Union introduced a carbon emissions trading scheme that allowed for the trading of European Union Allowances (EUAs). It is now the world's second largest carbon market, behind China, with over 10,000 energy-consuming facilities covered. The policy establishes a carbon price and covers around 40% of EU emissions, primarily from utilities and big industries such as steel mills and chemical plants. The benchmark EU carbon price will reach €64 per ton in October 2021.
By 2050, the EU wants to be carbon-neutral, which experts think is necessary to keep global warming below 1.5 degrees Celsius. In addition, the EU established a medium-term aim of lowering carbon emissions by at least 55% by 2030, compared to 1990 levels of 40%. As a result, carbon credits are crucial to attaining these objectives.
Investing in Climate Change Solutions
To address climate change, financial resources and wise investments are required to cut emissions, facilitate adaptation to already-existing consequences, and create resilience. The advantages that result from these expenditures, on the other hand, much transcend any initial expenses.
Prior to the COVID-19 epidemic, studies and analyses demonstrated that investments in climate action would go a long way toward building a sustainable economy. According to Globe Bank figures from October 2019, the world would require massive infrastructure investment over the next 15 years, totaling roughly US$90 trillion by 2030. It was discovered that shifting to a green economy might open up new economic prospects and jobs. On average, a one-dollar investment returns four dollars in benefits.
In addition, according to the New Climate Economy Report, aggressive climate action may result in a direct economic benefit of US$26 trillion by 2030, compared to business as usual. Whether we produce or destroy wealth and possible avenues to success will be determined by our investment decisions today. If we are to succeed in reducing climate change to sustainable, livable levels, it is becoming increasingly evident that the world cannot afford to burn all of its fossil fuel reserves. The long-term economic truth is that we can only burn a portion of proven fossil fuel stocks if we want to stay below 1.5°C. This shift will necessitate measures that guide countries toward carbon neutrality long before the year 2050.