Climate change and how it affects your investments

Posted On Wednesday, Dec 04, 2019


What causes businesses to fail?

It could be anything from unproductive working capital management, wrong demand forecasting, unsuitable product mix, incorrect market research ,bad labor relations, market recession, shortage and high prices of raw materials, import-export restrictions, adverse investments, bad credit, to lack of finance and inability to raise funds!

So on and so forth.

Now get used to seeing another item on that list of likely causes of business failure – climate change.

As per a study published in the journal Naturefound, the world's oceans have risen about an inch in the past 50 years due to melting glaciers alone. Carbon dioxide has reached levels in the atmosphere not seen in 3 million years. And as per the National Oceanic and Atmospheric Administration, the past five years have been the five warmest since record-keeping began in the late 1800s.

Yes, climate change is real.

In fact, as per the World Economic Forum Global Risks Perception Survey 2018–2019, business leaders are acknowledging the risks that climate change is expected to bring.

Getting to how climate change or the change in global or regional climate patterns can negatively affect businesses, 2 types of risks have been identified.

1) Physical risk
2) Transition risk

Physical risk would mean the potential damage caused to business infrastructure due to extreme weather events, which is a systemic risk that can, at the most, be minimized, but not entirely “managed”.

Transition risk on the other hand will be firm specific, and would arise due to the business’s inability to change /prepare itself for surviving and thriving in a low carbon economy. This will entail time, costs and major process reorientation.

So what are the changes that a low carbon reality will bring?

It could change the attitude, expectations and acceptability of increasingly conscious consumers towards a business’s products as they vote with their wallet. It could change the regulatory environment to suit responsible businesses and punish the irresponsible ones. It could change the competitive landscape with new climate-friendly technologies gaining traction. It could alter availability and costs of physical and financial resources needed to run the business. It could lead to financial markets rewarding the sound businesses by driving up stock prices, and abandoning the laggards. And lastly, it could prove that Darwin was right. It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.

Sectors like energy, agriculture, insurance, transport, and logistics are already facing changes and challenges brought about by climate change. Energy with the increased focus on renewable sources, transport with the introduction of electric vehicles, and agriculture with decreasing crop yields thanks to soil degradation and rising temperatures.

Evidently these sectors and how they do business is rapidly changing. And other sectors are expected to follow soon.

So if the CEO of a business you own is not preparing for, or ignoring the very real financial consequences of climate change on the business, he isn’t doing a good job. And if as an investor you still choose to own that business, which could potentially face financial losses or even extinction, you’re not doing a good job either.

However, for the average investor, analysing these aspects of a business can be challenging, mostly due to lack of resources like time and information.

That’s where the Quantum India ESG Fund can help, by providing you a readymade, diversified portfolio of businesses that are environmentally responsible, and hence long term stewards of your capital.

Product Labeling
Name of the SchemeThis product is suitable for investors who are seeking*Riskometer
Quantum India ESG Equity Fund

(An Open ended equity scheme investing in companies following Environment, Social and Governance (ESG) theme)
• Long term capital appreciation

• Invests in shares of companies that meet Quantum’s Environment, Social andGovernance (ESG) Criteria
Quantum Long Term Equity Fund
Investors understand that their principal will be at High Risk
* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Mutual fund investments are subject to market risks read all scheme related documents carefully.

Please visit – to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

Above article is authored by Quantum.

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