Unmeasurable economic loss

Climate change not only brings about hotter summers, but also more frequent extreme weather events - droughts, strong winds and floods and many more natural disasters. Super typhoons like Mangkhut, which smashed Hong Kong in 2018, could become more common as a consequence of climate change. Moreover, extreme weather could cause huge economic losses. According to the data, climate change may lead to a loss of 4% in global annual economic output by 2050. The World Meteorological Organization even identified that over the past 50 years, extreme weather disasters in different parts of the world have caused more than 100 deaths and economic losses of USD$202 million every day.

These economic losses will stem from various causes. First, governments have to spend extra money to handle the consequences of extreme weather, such as post-disaster reconstruction. Second is the costs associated with “climate refugees”, a term coined by the United Nations Environment Programme in 1985. Climate refugees are people who are forced to leave their homes due to extreme weather, water and food shortages. According to estimates, climate refugee numbers worldwide may reach 1.2 billion by 2050. At that time, countries will have to pool more resources to accommodate the increasing number of refugees, resulting in a heavy financial burden. The third cause of loss is food supply costs. As agriculture is highly dependent on nature, extreme weather inevitably leads to crop failures and increased animal diseases, which will then stimulate surges in food prices and inflation.

Investment industry offers suggestions and solutions

As investors, what can we do to help prevent and mitigate the impact of climate change, in addition to reducing energy waste in daily life? Sustainable investing could be one of the answers. At present, fossil fuels such as coal account for more than 75% of global greenhouse gas emissions, the biggest cause of global climate warming. Therefore, when choosing investment products, investors may wish to pay more attention to the investment themes related to sustainable development, such as climate or energy transformation. These themes are internationally recognised and can contribute to addressing causes of extreme weather.

There is also a lot of work for us to do at the fund industry level. In recent years, climate-related asset management organisations have been established one after another, striving to solve and prevent extreme weather. For example, the Net Zero Asset Managers Initiative set up in 2020 has attracted more than 270 members to join in just two years, and all participants have pledged to achieve net zero emissions by 2050.

Specifically, many fund companies have introduced an exclusion policy, that is, funds under their management will not invest in companies that are harmful to the environment like the coal sector. In addition, the fund industry can also make good use of its influence, such as by shareholders voting, communicating with the management and encouraging enterprises to accelerate climate transformation. Last year, we have engaged with 203 companies through the above ways to motivate them to reduce carbon emissions.

As countries tighten regulations, the progress of carbon reduction in the financial industry is becoming more transparent. More and more fund companies are taking the initiative to disclose the carbon emissions of their funds for public reference. Furthermore, many companies are now releasing Task Force on Climate-related Financial Disclosure reports, using scenario analysis to predict the changes in extreme weather and prepare for the future.

As long as we work together continuously, the damages brought by extreme weather can be eased and investors can also discover unique long-term investment opportunities.