Extreme weather events in Southeast Asia have highlighted the threat of climate change in the region, where rising sea levels and other impacts are already being felt. For example, flooding in Vietnam affected over 7.7 million people in 2020, while Typhoon Goni caused significant damage in the Philippines. Droughts also have devastating impacts on agriculture and water supplies, as seen in the Mekong region in 2019. Investors have the power to encourage sustainable practices and a low-carbon economy through engagement strategies, thereby mitigating the impacts of climate change. This article will discuss four major business risks linked to climate change and how investors can use their portfolios to reduce these risks. As an investor focusing on social and environmental impact, I believe there is still hope for addressing these crises through collective action.
1. Invest In Resilient Infrastructures
Extreme weather events pose a significant risk to infrastructure, supplies, and the people and businesses that rely on them. However, investors can turn this challenge into an opportunity to invest in resilient buildings better equipped to withstand these events. For instance, developing countries may offer attractive investment opportunities in new construction and infrastructure projects designed and built to hold up under extreme weather conditions. On the other hand, investment opportunities in developed economies may lie in promoting energy conservation within existing infrastructure. Moreover, as emerging markets continue to expand, investing in resource-efficient construction for new commercial buildings can help facilitate sustainable and long-term growth. As a result, the opportunities for investors in this area are twofold and offer the potential for significant returns while promoting sustainable and climate-resilient growth.
2. Invest in Environmentally Sustainable Businesses
Companies in Southeast Asia are still lagging in incorporating sustainability into their work processes. While this is a concerning trend, it also poses opportunities for investors. By investing in companies on the leading edge of creating products that help the environment, investors can not only promote more sustainable practices and help other companies transition away from heavy carbon-emitting industries. As economies worldwide move towards lower carbon emissions, investors can benefit from reducing their exposure to traditional energy sectors and instead focus on funds and companies that are positioning themselves for this transition. Investors can also focus on themes such as renewable energy, biofuels, and green hydrogen or innovative technologies such as electric vehicles and carbon capture and storage. In doing so, investors can play a pivotal role in mitigating the adverse effects of climate change while positioning themselves for long-term growth in the rapidly evolving sustainability sector.
3. Have Portfolios Focusing on Sustainability
Investors seeking to build a portfolio focusing on sustainability and social responsibility can benefit from considering companies with industry-leading environmental, social, and governance (ESG) practices. This is especially important since consumers tend to avoid companies involved in environmental or public relations crises. By investing across various sectors of the economy, including traditional energy, but only in companies that prioritise ESG practices, investors can eliminate the worst offenders and position their portfolio in companies with high standards of sustainable corporate practices.
This can include investing in companies with sound corporate climate policies, carbon footprint disclosures, and reduction targets, as well as those that have made sustainability pledges such as achieving carbon neutrality or cutting usage through efficiency. Moreover, investing in companies with better safety records and more diverse boards can further enhance the ESG profile of a portfolio. By taking a best-in-class ESG perspective, investors can also mitigate risks associated with environmental and public relations crises while still promoting sustainability and social responsibility in the corporate world.
Challenges Still Remain
While the abovementioned strategies can help reduce climate-change risk in Southeast Asia, traditional companies implementing changes to their operations, supply chains, and product-life cycles will likely make the greatest contributions. However, identifying climate solutions in corporate ESG disclosures can be challenging, as some reports may contain outdated information that does not reflect a company’s current status. This can leave investors unaware of opportunities with businesses transitioning to forward-looking climate change solutions. To address this, my team and I have incorporated extra ESG analysis into our climate-led investment process, paying closer attention to a company’s structure and culture and championing forward-looking ESG disclosures that meet investors’ needs. As such, we believe sustainable investing can encourage companies worldwide, including in Southeast Asia, to reduce their global carbon emissions.