Assessment of climate change risks and impacts in investment opportunities

Abstract

Climate change is one of the greatest risks by likelihood and by impact threating our future today. Impacts of the climate change are reaching all regions of the world and affect environment, society and economy. Purpose of this Master´s thesis was to investigate what kind of investment opportunities could arise from climate change and how these can be discovered. Aim was also to study how climate change impacts in different economic sectors and how countries can adapt and mitigate climate change by policies, regulation and actions. By understanding global climate politics and dependencies, it is easier to understand how transition from linear economy to circular low-carbon economy could change business opportunities and through that impact in investments.

The research method applied in this study was scenario analysis. Four plausible future trajectories for climate warming were outlined by emphasizing different level of climate policies and global co-operation. Renewable energy, circular economy, clean technology and the EU were the overarching implications of different scenarios that came up in the scenario analysis. Overall impacts of climate change to economic sectors and regional review were studied by close reading.

In conclusion of the results of the scenario analysis, investment opportunities can arise from renewable energy and battery development such as solar energy and wind power, battery storage technology, hydrogen, electric vehicles, bio-fuels and technologies which enhance energy efficiency. Also, circular economy solutions and clean technology can offer profitable investment opportunities by technologies which enhance efficient use of materials, renewable materials, food production technologies, nanotechnology and other technologies which enhance productivity and resource efficiency. In investment point of view, discussion was held about difficulty to valuate stocks in growth industries, to find suitable privately held and non-listed companies to invest in and risk of disruptive innovations that can change markets. On investment market wise, risk of sustainability bubble and effect of noise traders are good to consider when valuation level of stocks are assessed. Scenario analysis is important to update regularly, and it can be done also for existing portfolio to find out how climate change sensitive portfolio is. Individual stocks or other investment instruments can be also analysed by using scenario analysis.