How could El Niño and climate change impact your investments?

The first half of 2026 was disrupted by geopolitics. As we sweat through a sweltering summer, could the climate be the major driver in the second half?

Europe’s heatwaves have already had noticeable economic impacts. Barges transporting goods along the Rhine have had to reduce their capacity thanks to lower water levels, while France cut its nuclear power output because rivers were too warm to cool reactors.

And the brewing El Niño – a weather pattern characterised by rising sea temperatures, particularly in the equatorial Pacific ocean – could exacerbate these effects further.

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“The macroeconomic impacts of El Niño are hard to both quantify and predict but affect everything from crop production and food prices to hydroelectric power generation and demand,” said Sophie Chardon, head of sustainable investments at private bank Lombard Odier in a research note.

“A warming world is thus raising long-term physical climate risks, with implications for infrastructure and security in sectors from power and mobility to natural resources and food production,” Chardon added.

With the earth warming up, what could the consequences be for your money and your investments?

Commodities could be set to rise

One effect of an El Niño weather system could be a rise in commodity prices, especially for certain agricultural products.

“The last time a major El Niño hit (2023–2024)... cocoa rallied 250%,” said Aneeka Gupta, director of macroeconomic research at asset manager WisdomTree. “Sugar hit its highest price in over a decade. Rice exporters shut their borders.”

While those events felt dramatic at the time, Gupta cautions that the impacts could be even greater this time around given the impact of the US-Iran war and the fertiliser crunch. More than a fifth of the world’s urea (a key ingredient in agricultural fertiliser) is sourced in the Middle East, so its supply has also been disrupted by the conflict.

Global baseline temperatures have climbed further since the last major El Niño, which could exacerbate the impact of this one.

The US National Oceanic & Atmospheric Administration (NOAA) is also predicting a 63% chance of a ‘very strong’ El Niño this year.

“On its own, that would already be worth watching,” said Gupta. “Layered on top of the Strait of Hormuz disruption, which has throttled fertiliser flows from the Middle East at precisely the moment farmers need to be securing inputs, this event arrives at a moment of unusual fragility for global food production.”

Lombard Odier’s Chardon added that the combination could have a particularly strong impact on wheat, corn, rice and soybeans, “with the risk of farming and power interruptions in many key emerging markets”.

This could see increases in food prices, especially for foods based on the products that are most heavily impacted by El Niño.

“Soft commodities have consistently been the strongest performers during El Niño episodes,” said Gupta. “Three of the five soft commodities (cotton, coffee, and sugar) moved to multi-year highs in 2022–23, and in late 2024 orange juice and cocoa reached record highs… Every strong El Niño in the past 55 years has reduced global cocoa production.”

How can you invest with climate change in mind?

Some of the economic impacts that El Niño and climate change are likely to cause will impact your finances, in ways you can’t control – for example, by potentially higher food prices. Higher food prices could have a knock-on effect on inflation.

But there are ways to invest so as to at least benefit from some of the responses and solutions to climate change.

You could, for example, invest in the energy transition commodities that are poised to see demand surge as governments reposition their power supply to reduce greenhouse gas emissions, or in funds that hold renewable energy suppliers. Investment trust Foresight Environmental Infrastructure (LON:FGEN) is a good example; it holds

Chardon talks about climate adaptation as an investment theme.

“Adaptations to improve the resilience of our economies’ infrastructure can enhance productivity, boost resource efficiency and create value, with opportunities in public and private markets,” she said,

One of the key pillars of this kind of investing is water. Climate change is increasing the prevalence of droughts, and of floods – which can be just as disruptive as droughts for water suppliers. Some experts see global water demand outstripping supply by as much as 40% by 2030.

Funds that capture this trend include Pictet Water, the Regnan Sustainable Water and Waste Fund or Allianz Global Water.

Or for exposure to the soft commodities that could be subject to price rises following El Niño, the WisdomTree Agriculture ETC (LON:AGAP) is an exchange-traded commodity (similar to an exchange-traded fund but for commodities) tracking a basket of agricultural futures contracts including for soybeans, coffee, sugar, cotton and cocoa.