The cost of inaction. Recognising the value at risk from climate change

The cost of inaction. Recognising the value at risk from climate change

The findings in “The cost of inaction” – a 2015 report written by The Economist Intelligent Unit – indicate that climate change is likely to represent an obstacle for many asset owners and managers to fulfil their fiduciary duties.

The asset management industry – and thus the wider community of investors of all sizes – is facing the prospect of significant losses from the effects of climate change. Assets can be directly damaged by floods, droughts and severe storms, but portfolios can also be harmed indirectly, through weaker growth and lower asset returns. Climate change is a long-term, probably irreversible problem beset by substantial uncertainty. Crucially, however, climate change is a problem of extreme risk: this means that the average losses to be expected are not the only source of concern; on the contrary, the outliers, the particularly extreme scenarios, may matter most of all.

Brian Gardner, the editor of the report, said: “Investors currently face a stark choice. Either they will experience impairments to their holdings in fossil-fuel companies should robust regulatory action on climate change take place, or they will face substantial losses across the entire portfolio of manageable assets should little mitigation of climate risk be forthcoming. Charting a path away from these two options should be a strong motivation for long-term investors to engage with companies in their portfolios and to shift investments towards a profitable, low-carbon future.”

 

Source: The Economist Insights

Date: August 2015

Read the article

Read the report


Tags assigned to this article:
climate changecostsinvestments

Related Articles

Open letter to world leaders

Around the world, people from all walks of life are standing together to demand a strong climate agreement in Paris

Only five years left before 1.5°C carbon budget is blown

In its most recent synthesis report, published in early 2014, the Intergovernmental Panel on Climate Change (IPCC) laid out estimates

7 charts that show why UN climate talks keep breaking down

By the end of 2015, representatives from around the world hope to hammer out an agreement with “legal force” that