How Climate Change Can Impact the Stock Market

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Climate change is a clear threat to our planet’s future and our way of life. But the environment, weather, and wildlife aren’t the only areas you’ll see the impact of climate change — it could impact the stock market as well. 

All signs point in a dangerous direction when you look at rising sea levels, increased droughts, more intense heat waves, and more frequent powerful hurricanes and strong storms. Sea ice is depleting, wildfires are becoming more common and more damaging, and just this month, NASA announced that 2020 was tied with 2016 for the hottest year on record. 

So no, you’re not imagining it; this past year was hot, and it’s only getting hotter. According to scientists at NASA’s Goddard Institute for Space Studies (GISS) in New York, the year’s globally averaged temperature was 1.84 degrees Fahrenheit (1.02 degrees Celsius) warmer than the baseline 1951-1980 mean. 

“The last seven years have been the warmest seven years on record, typifying the ongoing and dramatic warming trend,” said GISS Director Gavin Schmidt. “Whether one year is a record or not is not really that important — the important things are long-term trends. With these trends, and as the human impact on the climate increases, we have to expect that records will continue to be broken.” 

Climate change is a real concern, and if we don’t do something and fast, the future of the planet and all of earth’s inhabitants are at risk of survival today and for future generations. But recent reports indicate that the threat to survival is not the only dangerous impact.

The stock market could be affected as well. 

In recent weeks, corporations have been increasing pressure to support climate change resolutions and divest from fossil fuel companies to curb its negative impact.

A recent CNBC article reported that “New York State’s $226 billion pension fund announced a plan to potentially divest from oil and gas stocks in the years ahead.” Similarly, BlackRock, the world’s largest money manager, issued an update to its approach to engaging with corporations, indicating it will be more inclined to vote in favor of shareholder resolutions, including on the issue of climate change. 

This updated approach is more in line with BlackRock’s CEO’s attitude. In an annual letter to CEOs published January 2020, BlackRock Chief Executive Larry Fink said: “Climate change has become a defining factor in companies’ long-term prospects … But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.” 

To be clear, this change will have a considerable impact on the stock market, especially considering the world’s biggest fund currently has over $7 trillion in assets. And while this move is big on its own, you can bet that this move will influence other investors and corporations.  

“It looks like they are saying they will be voting on climate resolutions to a huge extent rather than a modest extent. $7 trillion provides a loud voice and influence that other asset owners and companies in its portfolios will follow,” said Mindy Lubber, CEO, and president of Ceres, a sustainability nonprofit that works with investors on climate change. It’s worth noting that Ceres also announced last year that a consortium of investors managing $9 trillion in assets committed to investing along with net-zero carbon goals in an effort to support climate change.

Time will tell if these moves actually have the kind of dramatic impact on climate change that supporters hope to see, but it’s certainly a step in the right direction. This new direction is something investors will need to keep an eye on to make sure it’s properly institutionalized.