Investors must take threat of climate change seriously: report

A new report from global consultancy Mercer identifies the ‘what?’ the ‘so what?’ and the ‘now what?’ in terms of the impact of climate change on investment returns. The insights enable investors to build resilience into their portfolios under an uncertain future.

The research, titled “Investing in a time of climate change”, maintains that investors can manage the risk most effectively by looking ‘under the hood’ of their portfolios and factoring climate change into their risk modelling, which may require a significant behavioural shift.

Mercer collaborated with 16 investment partners, collectively responsible for more than US$1.5 trillion, to produce the report. It was supported by IFC, the private sector arm of the World Bank Group, in partnership with Federal Ministry for Economic Cooperation and Development, Germany, and the UK Department for International Development (DFID). The study was also supported with contributions from Mercer’s sister companies NERA Economic Consulting and Guy Carpenter, and input from 13 advisory group members.

The investment modelling in Mercer’s report estimates the potential impact of climate change on returns for portfolios, asset classes and industry sectors between 2015 and 2050, based on four climate change scenarios and four climate risk factors. The four scenarios represent a rise in global temperature above pre-industrial era temperatures of 2°C, 3°C and two 4°C scenarios (with different levels of potential physical impacts).

See the report here.

Helga Birgden, Partner and Global Responsible Investment Business Leader at Mercer said: “Whilst it is challenging, we have attempted to quantify the potential investment impacts of climate change. We recognise that markets do not always price in change; they are notoriously poor at anticipating incremental structural change and long-term downside risk until it is upon us.”

“This report can act as a guide to creating an action plan. Whether it is setting portfolio de-carbonisation targets, investing in solutions that address risks and opportunities, or increasing engagement with managers and companies, our report shows investors how they might take action. Engaging with policy makers is also crucial and helps empower investors in their role as ‘future makers’.”

David Nussbaum, WWF-UK chief executive, commenting on the report, added: “This report highlights that investors should see the opportunities in addition to the risks from climate change. The tides are turning toward a low carbon future and away from the unsustainable status quo. Investment is needed to accelerate this unavoidable trend and those who are ahead of this trend, the report shows, may in fact better secure their financial future.

“It is now time for us to make sure that our investments are safe for the long term, safe financially and safe for our precious planet.”