The Earth’s temperature has fluctuated naturally for many millennia, but since the Industrial Revolution, global economic growth has been inextricably linked to the burning of fossil fuels. Through the emission of greenhouse gases, this has contributed to an increase of 1.1°C in global average temperatures above pre-industrial levels.1 As the world’s population grows and more people aspire to the lifestyle enjoyed by those in developed countries, the global demand for energy continues to rise. Although progress has been made in de-coupling economic growth from the emission of greenhouse gases, so far this has only been achieved in a few countries. Overall, greenhouse gas emissions are still increasing.
The environmental impacts of climate change – such as storms, extreme temperatures, wildfires and droughts – are already affecting millions of people, disrupting global supply chains and inflicting damage to property and businesses (see box). And while it is difficult to attribute a particular event to climate change, the frequency and severity of extreme weather events and natural disasters are increasing.
A more volatile climate presents growing risks to the companies in which we invest, underscoring the need for them to manage their exposure to climate events to ensure their long-term financial performance. Yet some businesses are underestimating the urgency and significance of these chronic events. Analysing these risks matters – which is one of many reasons why Ruffer fully integrates environmental, social and governance (ESG) considerations into our investment process. But the implications for both companies and countries go far beyond extreme weather events, because climate change is exacerbating geopolitical tensions.