The world seems to be losing the fight against climate change. Economies and financial markets are increasingly giving the impression that the disruption associated with higher global temperatures is completely unprepared. And the political measures to limit the rise in temperature still seem unsuitable for this purpose.
We believe that in 2020 and beyond we must face the new normal, namely climate change. It will trigger a fundamental restructuring at the social, economic and company level. This makes climate change a hot topic for investors around the world.
Past and present: an eventful year of climate
2019 was a year of records: record temperatures, record climate protests and record election results, as well as record carbon prices - to name just a few events. The year was marked by high-level conferences, such as the special UN climate summit in New York and the 25th UN climate conference (COP25) in Madrid in December 2019. The urgency of the summit has been underpinned by the publication of numerous scientific studies, including two IPCC reports on climate change and soil, as well as the oceans and cryosphere.
Temperature changes since 1850 (° C)
Source: IPCC.
All the above facts indicate impending disruption. Nearly 200 countries committed to limit the rise in global average surface temperature to below 2 degrees Celsius under the 2015 Paris Agreement. However, temperatures have already risen by 1 degree Celsius (overland temperature even by 1.5 degrees Celsius, see graphic above), and the current atmospheric levels of greenhouse gases indicate an additional increase of 0.5 degrees Celsius in the next few years. Time is running out and pressure is increasing and a radical climate protection program is required.
2020 and beyond: prepare for disruption
Looking ahead, significant changes are inevitable. The Paris Agreement will enter into force in 2020, and each signatory country is required to submit its own emissions targets and then formulate new targets every five years. Price mechanisms for CO 2 , such as emissions trading systems and border taxes, are already being introduced or are important regulatory issues.
In her role as President of the European Commission, Ursula von der Leyen's "Green New Deal" intends to introduce carbon marginal taxes for environmentally harmful companies from third countries in order to protect EU companies that are converting to climate protection. China's emissions trading system is scheduled to enter into force in 2020. And the Green New Deal, which was first proposed in the United States, is gaining in importance.
Technologies are becoming more cost effective. As a result, the pioneering disadvantage, which has long been associated with climate protection measures, is now turning into a pioneer advantage. Countries are starting to create the regulatory environment and infrastructure that the industries of the future will need to assert themselves and grow in a low-carbon world.
It is about more than the generation of renewable energies. Other industries and sectors are also meant, in particular agriculture and environmental resources, sustainable transport, energy storage and distribution, environmentally friendly construction technologies and the decarbonization of sectors such as steel, cement and aluminum.
As climate investors, we believe these trends represent a tremendous opportunity for companies that offer the products and services that are needed due to the global shift to a low-carbon economy. However, climate change also harbors risks for many companies, so that stock selection is now becoming increasingly important.