CLIMATE CHANGE AND HOW IT AFFECTS YOUR INVESTMENTS

What causes businesses to fail?

It could be anything from unproductive working capital management, wrong demand forecasting, unsuitable product mix, incorrect market research ,bad labor relations, market recession, shortage and high prices of raw materials, import-export restrictions, adverse investments, bad credit, to lack of finance and inability to raise funds!

So on and so forth.

Now get used to seeing another item on that list of likely causes of business failure – climate change.

As per a study published in the journal Naturefound, the world's oceans have risen about an inch in the past 50 years due to melting glaciers alone. Carbon dioxide has reached levels in the atmosphere not seen in 3 million years. And as per the National Oceanic and Atmospheric Administration, the past five years have been the five warmest since record-keeping began in the late 1800s.

Yes, climate change is real.

In fact, as per the World Economic Forum Global Risks Perception Survey 2018–2019, business leaders are acknowledging the risks that climate change is expected to bring.


Getting to how climate change or the change in global or regional climate patterns can negatively affect businesses, 2 types of risks have been identified.

1) Physical risk
2) Transition risk

Physical risk would mean the potential damage caused to business infrastructure due to extreme weather events, which is a systemic risk that can, at the most, be minimized, but not entirely “managed”.

Transition risk on the other hand will be firm specific, and would arise due to the business’s inability to change /prepare itself for surviving and thriving in a low carbon economy. This will entail time, costs and major process reorientation.

So what are the changes that a low carbon reality will bring?

It could change the attitude, expectations and acceptability of increasingly conscious consumers towards a business’s products as they vote with their wallet. It could change the regulatory environment to suit responsible businesses and punish the irresponsible ones. It could change the competitive landscape with new climate-friendly technologies gaining traction. It could alter availability and costs of physical and financial resources needed to run the business. It could lead to financial markets rewarding the sound businesses by driving up stock prices, and abandoning the laggards. And lastly, it could prove that Darwin was right. It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.

Sectors like energy, agriculture, insurance, transport, and logistics are already facing changes and challenges brought about by climate change. Energy with the increased focus on renewable sources, transport with the introduction of electric vehicles, and agriculture with decreasing crop yields thanks to soil degradation and rising temperatures.

Evidently these sectors and how they do business is rapidly changing. And other sectors are expected to follow soon.

So if the CEO of a business you own is not preparing for, or ignoring the very real financial consequences of climate change on the business, he isn’t doing a good job. And if as an investor you still choose to own that business, which could potentially face financial losses or even extinction, you’re not doing a good job either.

However, for the average investor, analysing these aspects of a business can be challenging, mostly due to lack of resources like time and information.

That’s where the Quantum India ESG Fund can help, by providing you a readymade, diversified portfolio of businesses that are environmentally responsible, and hence long term stewards of your capital.


Product Labeling
Name of the SchemeThis product is suitable for investors who are seeking*Riskometer
Quantum India ESG Equity Fund

(An Open ended equity scheme investing in companies following Environment, Social and Governance (ESG) theme)
• Long term capital appreciation

• Invests in shares of companies that meet Quantum’s Environment, Social andGovernance (ESG) Criteria
Quantum Long Term Equity Fund
Investors understand that their principal will be at High Risk
* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.