Climate change poses expensive risk for world’s investments but opportunities exist, say finance groups

Author:
Clare Saxon Ghauri
24 June 2014

LONDON: Climate change presents an expensive risk to the world’s investments, but there are also many opportunities to grow the low carbon economy, say a group of the world’s leading finance organizations.

A guide that sets out to the distil the Intergovernmental Panel on Climate Change’s (IPCC) Fifth Assessment Report (AR5) for investors and financial institutions to better understand climate impacts, reveals climate change and policy to reduce emissions will affect every sector of the economy, and therefore the majority of the world’s assets and investments.

Climate Change: Implications for Investors & Financial Institutions, published by financial groups: Institutional Investors Group on Climate Change, UNEP Finance Initiative, Sustainable Fisheries Partnership, the European Climate Foundation, the University of Cambridge Programme for Sustainability Leadership and the Cambridge Judge Business School, also highlights that private sector investors and financial institutions’ decisions “will have a major influence” on society’s response to climate change.

Despite being exposed to the downside risks of climate change, the authors stress the opportunities that exist for transitioning to low carbon investment and policies. They write: “Policy measures directed at reducing GHG emissions are likely to increase opportunities for investment in areas such as renewable energy and energy efficiency, and in companies with expertise in areas such as flood prevention or flood response.”

risk climate change

Image by IIGCC

Climate costs highlighted in the summary include:

  • Floods spanning the years from 1990 to 1996 caused losses of over US$1 billion each.
  • Around 270 million people and US$13 trillion worth of assets were exposed to 1-in-100 year extreme sea-level events by 2010.
  • Extra investment in the energy sector to keep global temperature rise below 2 degrees Celsius is estimated to reach up to US$900 billion a year to 2050.
  • It is also estimated that over US$3 trillion in port infrastructure assets in 136 of the world’s biggest cities are vulnerable to extreme weather events.
  • Labor will be impacted too, as higher temperatures lead to declining capacity and productivity, and huge investment is needed to maintain productivity levels.

The summary also explains that decarbonizing the economy to reduce fossil fuel use could result in ‘stranded assets’, where high-carbon asset value is reduced because it cannot be used.

Based on the IPCC's AR5, which is widely-held to be the most comprehensive overview of climate science, the summary is one of a set called IPCC Business Briefings. The series examines how the IPCC works and gives overviews of climate science, adaptation and mitigation in specific sectors including energy, transport and defense.

Stephanie Pfeifer, Chief Executive of the Institutional Investors Group on Climate Change, a group representing 88 of Europe’s largest investors with a combined worth of €7.5 trillion, said: “Investors are at risk from climate change, as well as being a potentially significant source of capital for the low-carbon investment needed to mitigate climate change. The investor community is taking action on climate change, and investments are being made, but more could be done with stronger policy. As we head towards Paris in 2015, ensuring investors and institutions have the tools to understand the impacts of climate change is crucial.”

This summary was released to time with this week’s 2014 Banking Environment Initiative Forum in Asia, where industry, investors and public authorities meet to address the mounting concern for the costs and disruptive impacts of climate change on the economy, society, and stability of the financial system, as well as investment needed for a prosperous, low carbon economy.

Read Climate Change: Implications for Investors & Financial Institutions

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By Clare Saxon

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