Why investors should pay attention to COP26 climate talks

There is only one thing here: Experts warn that the climate crisis could trigger the next financial meltdown.

“The climate crisis is slowly emerging, but it is potentially catastrophic,” said Tobias Adrian, a senior International Monetary Fund official. he told CNN Business earlier this year and warned that global warming could also “absolutely” cause a financial crisis.
Earlier this month, the U.S. Financial Stability Board warned of climate change “as an emerging and growing threat to U.S. financial stability.” first time.

Breakdown: It is no secret that extreme weather events associated with higher temperatures are already causing significant economic costs. But the problem will only get worse in the coming years. Businesses could see their assets being destroyed – or left with declining or worthless portfolios as government policies change, as well as investor-consumer attitudes.

This is a debate that is already taking place in the oil industry. There is currently a demand for almost 100 million barrels of oil per day. But to limit global warming to 1.5 degrees Celsius and avoid the worst effects of the climate crisis, the United Nations and partner scientists have warned that the world must “immediately and sharply” cut back on fossil fuel production.

If production declines and demand falls as money spills over into renewable energy, what happens to the value of an extensive network of companies and infrastructure dedicated to extracting oil from the ground?

Investment in the sector is beginning to give priority to short-term projects, due to uncertainty about the future.

“People are trying to get their money back sooner, so long-term dislocation is less of a risk for them,” Nikos Tsafos, an energy and geopolitics expert at the Center for Strategic and International Studies, told me. “They don’t place bets on 10, 20 years.”

Nevertheless, there is a growing concern that investors may not be aware of how sensitive a company’s balance sheet is to the climate crisis, which has triggered efforts for more disclosures.

See here: According to an analysis by Carbon Tracker, a London-based think tank, more than 70% of some of the world’s largest companies causing pollution have not disclosed the effects of climate risk in their 2020 accounts.

“Without this information, there is little chance of knowing how much venture capital there is or whether funds are being allocated to unsustainable companies,” said Barbara Davidson, lead author of the report.

Government of the United Kingdom he said last week that it intends to be the first major economy to legally require corporations to report on climate-related risks and opportunities.

The proposed legislation would apply to many of the largest companies traded on the London Stock Exchange, banks and insurance companies, and private companies with more than 500 employees and £ 500 million ($ 690 million) in sales.

Take a look at this space: Business lobbyists from countries around the world are urging negotiators at COP26 to discuss how to simplify disclosures so that companies can operate in a consistent framework.

“Almost all of our members run companies that operate around the world,” the groups wrote in a statement last week. “We support better harmonization of climate change disclosure standards, which we have developed with contributions from industry, investors and standard setters.”

Is the Fed finally ready to pull the trigger?

Inflation has been growing the fastest in the last three decades and shows no signs of slowing down any time soon.

Enter the Federal Reserve, which could be ready to step in after months of stressing that it doesn’t want to skip.

Most recent: The Fed’s US inflation target, the Personal Consumer Price Index, showed on Friday that inflation jumped 4.4% between September and September, the biggest jump since 1991. Excluding food and energy costs prices increased by 3.6%.

This could strengthen the Fed’s determination to take action at this week’s meeting.

Investors are betting that after months of speculation, the US Federal Reserve will begin canceling bond purchases to help the economy during the pandemic. Asset purchases are expected to decline by $ 15 billion each month, and the narrowing process will end in June.

“A [Wednesday] The reduced release looks forgotten, “ING strategists, including James Knightley, the bank’s chief international economist, told customers in a recent statement.

The big debate is now over when the Fed could start raising interest rates.

“The next few months are critical for assessing whether the high inflation figures we’ve seen are transient,” Fed Governor Christopher Waller said in early October. “If monthly inflation footprints continue to be high until the end of this year, a more aggressive political response than just a downgrade may be justified in 2022.”

A fifth of investors now believe the Fed will start raising interest rates as early as March next year. CME Group FedWatch tool. That rises to more than two-thirds in June. Not long ago, there was a consensus that the rate increase would not start until 2023.

Next

Monday: data on production in the USA and China; Avis (AUTO) in Clorox (CLX) earnings; An online summit kicks off in Lisbon
Tuesday: BP (BP),, ConocoPhillips (COP), Corsair Gaming, Ferrari (DIRKA),, Petroleum Marathon (MPC),, Pfizer (PFE),, Under the armor (UA),, Activision Blizzard (ATVI),, Elevator (LYFT) in Zillow (Z) earnings
Wednesday: Federal Reserve policy decision; ISM Non-production index; CVS (CVS),, Marriott (MAR),, Etsy (ETSY),, Fox Corporation (FOX),, Hyatt (H) in Qualcomm (QCOM) earnings
Thursday: OPEC + meeting; Bank of England policy decision; Kellogg (K), Nikola, ViacomCBS (VIACA),, Living people (LYV),, Occidental (OXY),, Peloton (PTON),, Pinterest (PINS),, Red fin (RDFN),, Square (SQ) in Uber (UBER) earnings
Friday: a report on jobs in the US; Cinemark (CPC) and DraftKings earnings

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