By Caroline Grady 07-02-2020

Investing In Climate Change (Top of Mind, Goldman Sachs)

(20 min listen)
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Summary (You can listen to the podcast by clicking here)

• Experts from Goldman Sachs and the University of Chicago discuss how investors are approaching climate change

• We are still very far away to meeting Paris climate goals despite slowing growth in carbon emissions.

• In the absence of changes in the cost of fossil fuels versus low carbon, countries will continue to prioritise fossil fuels.

• But there is no long-term trade off with carbon and growth as high carbon prosperity doesn’t exist given the devastating impact of climate change.

• Carbon pricing: can help by 1) focusing on carbon removed per dollar spent, 2) specialisation by who is best at solving carbon emissions rather than who is causing, 3) R&D investment more thoughtful, PV of what technology might be worth.

• Choice between carbon taxes and cap and trade programs: Compelling arguments on both sides. But effective price currently close to zero. Need to get it close to the social cost (crop damage, mortality, labour supply, flooding).

• Others favour cap and trade programs as integrates a limit and a price on greenhouse gas emissions. But price is only a means to an end so still need policies to reflect the end we want to achieve, i.e. limits on total pollution.

• We may not yet know the most efficient solution to climate change although batteries and carbon capture will still be important.

• Investment implications: Consolidation in oil and gas industry resulting in higher prices, and higher profitability of big oil.

• Is there an ESG bubble? Too strong a term but the bar for how you add value keeps rising. Finding mediocre ESG assets who want to be great is one strategy.


Why does this matter? Climate change sensitivities and ESG investing are gathering momentum. An understanding of the different issues is increasingly important given climate concerns look set to become an increasing feature of both fiscal and monetary policy. It will also drive shifts in flows as investors seek out green assets. [Bullish ESG]   


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