Climate change a bigger impact on portfolios than expected returns

With US labour productivity expected to improve and a supply-side boost for the global economy more likely to happen this year, Robeco is anticipating an investment-led pick up in productivity.

The international asset manager published its annual ‘Expected Returns’ report which looked at what investors could expect over the next five years for all asset classes, predicting a pick-up in productivity would beat subdued gross domestic product (GDP) per capita growth seen through the 2009-19 ‘great expansion’.

Though, Robeco’s optimism was tempered by the “atypical stop-start dynamic” of 2020-21 which caused macro-economic uncertainty to hit record levels and the growing awareness of the severity of the climate crisis.

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The report concluded the composition of asset classes may be impacted more by climate change than expected returns over the next five years, as Robeco anticipated more issuance of shares and bonds from green companies going forward.

Robeco said: “Emerging equity markets and high yield bond markets are much more carbon intense than developed equity markets and investment grade bond markets, which will put pressure on their prices over the next five years”.

“Active investors can add value by integrating their view of climate change and how policies, regulations, and consumer behaviour will affect a company’s profits.”

It said massive divestment from fossil fuel companies may lead to a carbon risk premium.

According to the asset manager, the question of whether inflation would be transitory or longer-term meant investors needed to be open minded as to how the economic landscape could unfurl over the coming five years.

Peter van der Welle, Robeco multi-asset strategist, said negative real interest rates would drive above-trend consumption and investment growth in developed economies.

“While the link between corporate and public capex and the productivity growth that ensues remains intact, with positive real returns on capex benefiting real wages and consumption growth,” he said.

Laurens Swinkels, researcher at Robeco, said this was the first year the report considered the impact of climate change on risk returns.

“Although 86% of investors from our survey believe climate risk will be a key theme in their portfolio’s by 2023, regional valuations do not yet reflect the different climate risks to which the various regions are exposed,” Swinkels said.


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