Your investments and the climate emergency

Climate change is a planetary emergency requiring unprecedented action. It’s a race against time and we all have a role to play. Our research shows that many savers view climate change as an important consideration when investing. However, few are likely to know whether their pension or stocks and shares ISA are aligned with a climate-neutral future.

'Climate change is already affecting every inhabited region across the globe with human influence contributing to many observed changes in weather and climate extremes.'

Intergovernmental Panel on Climate Change, Sixth Assessment Report

At least 2 million

years since the CO2 concentration in the atmosphere was at current levels (Intergovernmental Panel on Climate Change)1

5x increase

in climate and weather-related disasters over the past 50 years (World Meteorological Organisation)2

Over $4 trillion

annual investment in clean energy needed by 2030 to reach net zero by 2050 (International Energy Agency)3

What needs to happen?

Greenhouse gas emissions need to reach ‘net zero’ by mid-century at the latest, with very rapid reductions required this decade. This transition will require enormous sums of investment.

Less

Oil and gas use

Coal-fired power

Livestock production

More

Wind and solar power

Electric vehicles

Nature conservation and restoration

Net zero carbon

What is 'net zero'?
A point at which remaining greenhouse gas emissions from human activities are balanced by removing the same amounts from the atmosphere, so there's zero additional pollution.

What does it mean for your investments?

All companies can be affected by climate-related risks, but some are more vulnerable than others. Fossil-fuel companies are an obvious example. As the world shifts away from oil, gas and coal, these companies need to fundamentally change their business models to survive. At the other end, companies providing solutions to climate change are likely to benefit, as demand for their products and services strengthens. 

Risks

  • Policy change undermines business model and sharply reduces the value of carbon-intensive assets
  • Technology is made obsolete due to regulation, innovation and changing consumer preferences
  • Damage and disruption to assets and supply chains from extreme weather and rising sea levels
  • Litigation against ‘climate offenders’

Opportunities

  • Renewable energy
  • Electrification of transport and heating
  • Regenerative agriculture and plant-based foods
  • Sustainable buildings
  • Circular economy (zero waste)

The risks and opportunities are for illustrative purposes only and should not be taken as investment advice. Investments that take climate change factors into account won't necessarily outperform those which don't, especially over a shorter time horizon. The value of all investments may go down as well as up and you may get back less than you invest.


Our approach

We take climate change extremely seriously. We're committed to reducing the carbon emissions in our workplace default funds to net zero by 2050, and halving them by 20304. As part of this effort, we’ve already moved over £10 billion into strategies that consider climate change as part of their investment process (as at September 2021).

We also expect the fund managers we partner with, for Aegon funds, to pay due attention to climate-related risks and opportunities. This includes actively engaging with companies and voting wisely at shareholder meetings to ensure they're taking necessary climate action.    

Collaboration is key to driving change and this is why we have joined initiatives such as the Institutional Investors Group on Climate Change (IIGCC), which aims to accelerate progress towards a net zero and resilient future. 

IIGCC Logo

What can you do?

Think about how the funds you invest in are positioned with regards to climate change. Are they taking credible steps to reduce emissions in your portfolio, and encouraging companies to take ambitious climate action in line with the science? And do they explain clearly how they manage climate-related risks?

Some funds will focus on sustainability issues as part of their decision-making process, for example by seeking out companies that are providing solutions to environmental challenges. 

 
Climate change is now a very important investment issue that should be considered alongside your long-term savings goals and risk appetite.

If you’re not sure if a fund is right for you, please speak to a financial adviser. If you don’t have one you can find one using the MoneyHelper service



1 Sixth Assessment Report — IPCC. Data source, IPCC, ipcc.ch, August 2021.

2 The Atlas of Mortality and Economic Losses from Weather, Climate and Water Extremes. Data source, WMO, library.wmo.int, September 2021.

3 Net Zero by 2050  Analysis - IEA. Data source, IEA, iea.org, May 2021 (figure in 2019 US$).

4 Default funds are those that workplace pension scheme members are automatically invested in if they don’t choose their own fund.