The new federal government is right to put climate change at the heart of its mandate; whether Justin Trudeau’s government can actually deliver promised emission reductions is another matter. Fortunately, investors have the power to tackle this risk in their own portfolios, and this is an opportunity your clients must not miss.
The latest round of global talks to address climate change, which take place in Paris early this month, surely will end with rosy pledges of strict emission cuts and self-congratulatory proclamations – as these meetings have done over the past 20 years. Unfortunately, what typically follows is backsliding, fudging and even outright flouting of these global commitments. This time around may be no different.
But that history can be changed for investors. While politicians may prove incapable of following through, every individual investor – and, by extension, financial advisors – has the power to root out this lurking portfolio risk and mitigate the threat.
Investors are susceptible to the same sorts of behavioural biases that often undermine the good intentions of policy-makers. Taking action that may imply some short-term pain, even if there’s the prospect of significant long-term gain, can be hard to do. And these biases are among the underlying reasons why many Canadians have too much debt, too little long-term savings and insufficient insurance. Planning for the future and protecting against uncertain threats are not easy. But doing so is prudent, and that’s the sort of value that sound financial advice can deliver.
For many investors, carbon risk is foreseeable, significant and likely to be ignored. Whether governments have the foresight and the fortitude to follow through on their climate change-related promises or not, investors may well be rewarded for acting alone in this matter.
There’s little downside to rooting out sources of major carbon risk lurking in investment portfolios. Doing so will, in all likelihood, prove to be a prudent move.
You don’t have to be a tree hugger to see the sense in protecting your portfolio and the planet, too.
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