ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Alternatives
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Disruptive Technology
    • Dividend
    • Dual Impact
    • Emerging Markets
    • Energy Infrastructure
    • ESG
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Fixed Income
    • Free Cash Flow
    • Future ETFs
    • Global Diversification
    • Gold & Silver Investing
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Market Insights
    • Megatrends
    • Modern Alpha
    • Multi-Asset
    • Night Effect
    • Portfolio Strategies
    • Retirement Income
    • Richard Bernstein Advisors
    • Tax Efficient Income
    • Thematic Investing
    • Volatility Resource
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
    • ETF Data for Journalists
    • ETF Nerds
  • Research
    • First Bitcoin ETF
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF Trends on Videos
    • ETF Trends on Podcasts
    • ETF Prime Podcast
  • Company
    • About Us
    • Swag Store
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. ESG Channel
  2. 3 Reasons the Climate Transition May Impact Portfolios
ESG Channel
Share

3 Reasons the Climate Transition May Impact Portfolios

Karrie GordonDec 08, 2021
2021-12-08

The transition to net-zero carbon emissions for economies isn’t one that is going to happen in a bubble, but it will instead be a rapidly accelerating event that will send shocks throughout systems on all levels. Reasons for the acceleration include the recent COP26 summit, the secondary effects of decarbonization, and the positive feedback loops created from the climate change transition, according to a recent paper from State Street Global Advisors.

Investors who are banking on slow shifts to address climate change needs could be setting themselves up for a major surprise, and a huge loss within their portfolios, believes Carlo M. Funk, the EMEA head of ESG investment strategy at State Street Global Advisors. The transition by economies to low emissions is one that will have long-term implications and will impact regulations and economies on a multitude of levels.

Increasing Commitments to Emissions Reduction

The COP26 global climate summit that concluded mid-November may not have come away with any singular, world-changing solutions, but increasingly more countries have committed to more aggressive cutbacks and net-zero target dates. The summit also saw the creation of a global carbon market that would contain two different types of allowances, one for private and public industries, and one strictly for countries to trade with each other in the move towards global net-zero. It’s a step towards greater Paris Agreement enforcement and commitment, and a move that accelerates the transition timeline.


Content continues below advertisement

Changing Trade Balances and Benefits of Being at the Top

The secondary benefits that countries and companies can gain from reducing carbon emissions is another main reason that the transition could intensify rapidly. Countries would stand to gain a lot by being world leaders in the renewable energy transition, particularly as developed countries are the net importers of energy in economies that rely on fossil fuels as a primary energy source. Trade balances could be shifting in a new global economy that is no longer reliant on fossil fuels.

ESG SSGA Graph Info Chart

Image source: SSGA

“For example, geopolitical superpowers (the US, China, and Europe) are incentivized to stay on top of the race to become a climate leader because the transformation to a low-carbon economy will come with enormous opportunities (similar to other disruptive shifts, like digitalization),” writes Funk.

Feedback Loops Will Intensify the Transition

A third reason for a more rapid transition is the positive feedback loops that could potentially be created as countries move away from fossil fuels. Such feedback loops include the volume-cost loop, whereby fossil fuel volumes are reduced as they are used less, driving up the cost and further decreasing demand.

Another feedback loop is the expectations feedback loop, where renewable energy demand increases and fossil fuel industries begin to look less credible with the shifting of investor and policymaker perception.

One more important feedback loop to consider is the financial one; increased renewable energy growth creates more inflows from investors, which in turn decreases the cost of capital for renewable energy companies. This allows for green energy companies to continue to expand and grow, while also putting price pressure on fossil fuel companies.

“In addition, the broader society feedback loop, the politics feedback loop, and the geopolitics feedback loop will further accelerate this transformation. As society becomes more concerned with the climate crisis and comes to better understand the financial benefits of renewable technology, people will likely change their behavior,” Funk notes.

For more news, information, and strategy, visit the ESG Channel.

Loading Articles...
Help & Info
  • Contact Us
Tools
  • ETF Screener
  • ETF Analyzer
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Performance Visualizer
  • ETF Database Model Portfolios
  • ETF Database Realtime Ratings
  • ETF Database Pro
More Tools
  • ETF Launch Center
  • Financial Advisor & RIA Center
  • ETF Database RSS Feed
Explore ETFs
  • ETF News
  • ETF Picks of the Month
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Best ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Legal
  • Terms of Use and Privacy Policy
  • © 2023 VettaFi LLC. All rights reserved.
Follow ETF Database
Follow ETF Database

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X