Preparing Investors for Positive and Negative Impacts
The list of considerations for investors preparing for the transition to the low-carbon economy seems endless. That’s where experts like Julian Poulter come in. He’s a partner at Energy Transition Advisors, one of the key contributors to the UN-backed Principles for Responsible Investment’s seminal publications, The Inevitable Policy Response (IPR). The IPR forecasts what policies governments are likely to adopt to address climate change and their impacts on the economy and investment.
Poulter joined AIMCo’s Spring Investment Symposium for a conversation with Carmen Velasquez, Manager, Responsible Investment. The session touched on the IPR’s projections for resource-based economies, the future of the energy industry and the implications of climate change on asset allocation strategies.
Buckle Up for a Bumpy Ride
While many forecasts and targets focus on the year 2050, Poulter highlighted some milestones that will come much sooner. He sees an end to deforestation by 2030 and electric vehicles becoming cost comparable with their fossil fuel counterparts by 2027.
Poulter admits that while the transition will be far from smooth, it’s not all doom and gloom. “Some sectors will need support from a jobs perspective, they won’t grow, but we think they will be offset by the opportunities. Ultimately — the other side of this transition — things like the power sector will go back to its historical level of returns,” he said.
“We’ll look back in a few year’s time and say, ‘what was all the fuss about?’ Likewise in the transport sector, I think. But in the meantime, there’s going to be a lot of volatility for investors to ride, and that creates opportunity.”
Active Investment Holds an Advantage
Poulter noted that the unique market conditions we’ve seen in recent years, including volatility, are likely to remain with us through the transition to a low-carbon economy. That’s going to make investing increasingly complicated.
“I don’t think this is going to be able to be managed through passive investment. I think this is tailor made for active management,” he said.
The fundamentals of future climate policies have likely not yet been levied as liabilities on company forecasts. That means the work of sell-side analysts, who will go as far as looking at a company’s strategic plan to determine its plan to manage the transition, will prove even more valuable.