Check out this fascinating post by Institutional Investor Senior Advisor Scott E. Kalb on climate change impacts on portfolios. #climatechange #impactinvesting #investmentmanagement
Investors often say they can't calibrate future climate change impacts on portfolios but the evidence is all around us. In 2023, the US had 28 weather-related disasters that each cost at least one billion dollars in damage, the most recorded in a single year in our history, according to the "2023 Billion Dollar Disaster Report" published by NOAA. Total costs in 2023 to repair the damage was 93 billion dollars. The frequency and intensity of climate change related weather events, and the damage and risk they pose to our economy, have been accelerating. Since 1980 there have been 376 billion-dollar weather disasters, costing more than 2.6 trillion dollars in total damage. Almost half of these disasters and costs occurred in the last decade. According to NOAA, climate change is supercharging the extreme weather that leads to billion dollar disasters— drought, lengthening wildfire seasons, and extremely heavy rainfall. Sea level rise also is worsening storm surge flooding. Global trends are similar. In Europe, economic costs to repair climate damage were 300 billion Euros over the last decade, half of the total costs incurred since 1980 (European Environmental Agency). Globally, over the last two years the economic costs from extreme weather topped 450 billion dollars (International Chamber of Commerce). These figures understate the problem. They do not include increased costs from negative impacts on human health, loss of employment, loss of shelter, forced migration, or increased social services. They do not include impacts from higher insurance rates, depleted natural resources, supply chain interruptions, agricultural damage, infrastructure failures, and lower corporate earnings. Nor do they include the increased costs of climate-related inflation, estimated at 1.2% per annum by the Potsdam Institute. Climate change is not just an existential threat - it is impacting us every day and accelerating, as temperatures continue to rise. This has important implications for future pensions and savings. Unfortunately, despite widely available scientific data, and revised economic models that point to lower growth and increased costs over the longer-term, we find that asset allocators are not reflecting climate change in forward-looking risk and return expectations for capital markets over 10- and 20-year horizons, partly because the benchmarks they use are backwards looking. Until asset allocators price the current climate trajectory appropriately in risk and return expectations for the long-term, our pensions and savings are likely to be over-exposed to damage, risk, and legacy industries, and underexposed to opportunities presented by the future we are headed toward, a decarbonizing world. At the Sustainable Financial Benchmarking Lab, an initiative sponsored by the RAAI at the Fletcher School and the PDI, we are working to solve this challenge. Please join us. Delilah Rothenberg, Paul O'Brien, Jessie Duncan, Kelly Sims Gallagher
Director at Institutional Investor
4dFascinating post Scott E. Kalb. We are looking forward to taking a closer look at this topic and the potential implications for investors at the Global West Government Funds Roundtable in London next May.