Isra-Mart srl:Climate change a serious risk to trillion-dollar institutional investments

www.isra-mart.com

Isra-Mart srl news:

Trillions of dollars of pension investment could be at risk from climate change over the next 20 years if funds do not move their portfolios into resilient assets, according to a new guide for institutional investors.

The report 'Climate Change Scenarios – Implications for Strategic Asset Allocation' analyses the potential financial impacts of climate change on the portfolios of investors such as pension funds, banks and insurance companies across four climate change scenarios to 2030. These range from regional divergence where some regions take action to reduce greenhouse gas emissions, to the least-likely scenario of a breakdown in efforts to fight climate change.

It warns that while new technologies will create up to $5 trillion of investment opportunities by 2030 in efficiency improvements, renewable energy, biofuels, nuclear and carbon capture and storage, the shift to a low carbon economy will also undermine investments that fail to adapt.

The report's author, investment consultancy Mercer, recommends increased exposure to "climate sensitive" assets such as infrastructure, real estate and carbon to protect portfolios against the risks of extreme weather and scarce resources, and better capture the benefits.

It estimates the cost of climate impacts on the physical environment, human health and on food security could reach $4 trillion by 2030, with costs rising for adaptation spending if "stern action" is delayed.

Uncertainty over a global climate agreement could also increase the cost of carbon emissions by as much as $8 trillion by 2030, the report said, adding that taking international and intra-national action sooner rather than later was the least disruptive and best for investors

"The uncertainties are lower than for the other scenarios, as investors are able to predict the pathways of policies with a reasonable degree of confidence

"Climate change brings fundamental implications for investment patterns, risks and rewards. Institutional investors should be factoring long-term considerations, such as climate change, into their strategic planning," said Andrew Kirton, chief investment officer at Mercer.

Howard Pearce, head of environmental finance and pension fund management at the Environment Agency, said institutional investors would be wise to take the findings seriously.

"[Climate change] matters because we know that we will need to be paying out pensions to our fund members well into the 21st century. We think all pension funds will need to adopt a climate change-proofed financial investment strategy in the future to enable them to fulfil their fiduciary duties," he said.