One of the most influential speakers in investment, Saker Nusseibeh of Hermes Investment Management, outlines why climate change should be more impactful on markets than ‘isolated’ political events.

There are massive concerns about the impact of Brexit upon the UK economy, and markets are very nervy about how far President Trump will push the US into a trad war with China. These and huge political, trade, social issues are priced into corporates’ future performance through their value to shareholders.

However, what if these trials and tribulations are inconsequential, or moments that will pass?

This is the starting point of a view that there are much bigger issues for markets and its constituents to face.

Saker Nusseibeh, CEO of Hermes Investment Management, believes that all these issues and concerns pale into insignificance compared to dealing with climate change.

The latest Intergovernmental Panel on Climate Change (IPCC) recently reported that atmosphere warming must be limited to an increase of 1.5 degrees of face catastrophic environmental circumstances. However, we are currently heading for a three-degree increase.

Nusseibeh  (pictured below) noted that the report, providing a similar warning to others in recent times, made the “top of every news channel”, which was a new phenomenon.

 

“That is because the media has realised that the public is on board. From rejecting drinking straws to this month’s plastic-free Royal Wedding, society is embracing the challenge to reduce the negative impact it has on the planet,” stated Nusseibeh in his Q4 2018 notes.

While it has taken “years” for environmental, social and governance -led investment to reach the mainstream, “societal momentum” means the movement is growing quickly.

“Whilst the UK government has already taxed plastic carrier bags, with a coffee cup levy seemingly not far away, if it was to react to the IPCC’s call and begin enacting laws aimed at preventing the advance of manmade climate change, it would have huge ramifications on thousands of companies – and their shareholders,” stated Nusseibeh.

“It is relatively easy to see how cutting back our use of fossil fuels leaves oil giants with a ‘stranded asset’ problem. One can then model it by calculating what they think is going to be left in the ground once limits on burning oil, gas and coal, have been established.

“However, what is less easy, is the ability to model the business impact of a revolution in customer demand, taste and consumption. Not enough attention is being paid to how significant this shift will be, not just to global retailers, but their entire supply chains too.

“We are going to see a profound shift in what people buy and how – this shift is coming soon, and at pace. It is up to us as investors to see it coming – and keep one step ahead,” he concluded.

Kevin Reed is one of the UK’s most senior accounting and finance journalists. He is a former editor of Accountancy Age and Financial Director, and writes regularly on corporate and professional services governance.

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