Life After COP26: Has Climate Action Changed The Game For Investors?
Giles Coghlan, Chief Currency Analyst at HYCM, takes a look at whether climate action has shifted the game for investors.
As the world watched on, global leaders, scientists and academics convened at the COP26 Summit in Glasgow just weeks ago, as Prime Minister Boris Johnson warned that the “doomsday clock is still ticking” in the effort against climate change. While this enormous undertaking has truly only just begun, traders and investors have no doubt been pricing new commitments into their portfolio management strategies.
All things considered, the path to a greener future is paved with investment opportunities, but this has not necessarily translated immediately to the stock market. Although the first day of trading on the London Stock Exchange following the summit saw some global mining giants take a hit, the FTSE 100 still managed to close the day out up 3.95 points, or 0.05%, at 7351.86. Typically, the markets struggle to account for any long-term view, and this remains the case post-COP26. This is especially the case considering that world leaders have mostly been speaking in terms of “phasing down”, rather than “phasing out” coal.
For this reason, it is not exactly surprising that research* commissioned on behalf of HYCM has shown that only 45% of investors consider sustainable investing to be important to them. Without concrete and robust action to tackle climate change, it is perhaps even less surprising that caution still prevails among investors, with just 19% considering ESG investment to be a savvy investment strategy at present.
So, what exactly is driving this mindset, and what should investors be watching as we transition to a zero-carbon economy?
‘Too much hype’ around ESG?
One potential answer to this question could be that concerns surrounding ‘greenwashing’ are deterring traders and investors from upping their investment in ESG assets. According to that same HYCM survey*, more than a third (38%) said that there is “too much hype” surrounding ESG investing at present.
The question, then, is whether these trepidations are substantiated. The answer is yes and no; while investors are quite right to be sceptical of companies hopping on the green bandwagon with re-branding and lofty environmental claims, they should make themselves aware of genuinely green initiatives.
In the months and years to come, there will be many opportunities for traders and investors in the race to net-zero across many areas. From a growth perspective, in the capital goods area, there is a huge amount of potential in the supply chain for climate solutions. Likewise, the technology field will be a crucial enabler for climate solutions in the long-term, so investors should monitor these opportunities closely.
At the moment, just one third (33%) of the investors surveyed* by HYCM plan to invest (or increase their investment) in green energy such as wind power, water stocks and solar energy in the next 12 months. That said, we can expect these figures to grow in line with changing environmental policy, such as a global carbon tax which would shock the stock market in the future. Green metals, such as copper, aluminium, nickel and lithium could also see gains over the medium term as their demand is expected to increase. Likewise, it is also important to note the fact that alternatives to traditional energy, such as oil, are already proving popular with traders and investors – right now, oil is one of the top traded commodities at HYCM.
Young investors will lead the charge
Another trend to be aware of is the fact that younger investors appear to be at the forefront of the shift towards net-zero. Compared with the smaller number (45%) of investors who said that sustainable investing was important to them, comparatively, the majority (60%) of younger investors aged 18-34 said that these investments were a priority, indicating a more values-driven approach towards investment.
When compared with other bodies of research, these figures stand up; research from MSCI has also shown that millennials have spurred the growth of sustainable investing throughout the 2010s – specifically, investors contributed $51.1 billion in sustainable funds in 2020, compared to the figure five years ago, which came in at $5 billion.
Traders and investors should expect these trends to stick, and this sunnier outlook will no doubt feed into the corporate mentality, as industry titans like Microsoft and Nike will be keen to establish their ESG credentials. All told, although COP26 may have failed to have an immediate impact on the stock market, the summit has likely set the tone for change over the medium to long-term, and traders and investors should ensure that they are kept in the loop with any policy changes and developments in this area.
HYCM recognises this trend and offers traders exposure to the renewable space through commodities and ESG stocks such as Tesla, and copper, which is expected to be more in demand as we build a greener future.
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About the author: Giles Coghlan is Chief Currency Analyst, HYCM – an online provider of forex and Contracts for Difference (CFDs) trading services for both retail and institutional traders. HYCM is regulated by the internationally recognized financial regulator FCA. HYCM is backed by the Henyep Capital Markets Group established in 1977 with investments in property, financial services, charity, and education. The Group via its relevant subsidiaries have representations in Hong Kong, the United Kingdom, Dubai, and Cyprus.
*About the research: The market research was carried out between 5th and 10th November 2021 among 2,000 UK adults via an online survey by independent market research agency Opinium. Opinium is a member of the Market Research Society (MRS) Company Partner Service, whose code of conduct and quality commitment it strictly adheres to. Its MRS membership means that it adheres to strict guidelines regarding all phases of research, including research design and data collection; communicating with respondents; conducting fieldwork; analysis and reporting; data storage. The data sample of 2,000 UK adults is fully nationally representative. This means the sample is weighted to ONS criteria so that the gender, age, social grade, region and city of the respondents corresponds to the UK population as a whole. Within this sample, 857 respondents had investment portfolios worth in excess of £10,000 – this includes all assets from bonds and currencies to commodities and stocks and shares but excludes any savings, pensions or property that is used as their primary residency.