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Investing in a Time of Climate Change

Investing in a Time of Climate Change

Full Title: Investing in a Time of Climate Change
Author(s): Mercer
Publisher(s): Mercer
Publication Date: June 1, 2015
Full Text: Download Resource
Description (excerpt):

Climate change is an environmental, social and economic risk, expected to have its greatest impact in the long term. But to address it, and avoid dangerous temperature increases, change is needed now. Investors cannot therefore assume that economic growth will continue to be heavily reliant on an energy sector powered predominantly by fossil fuels.This presents asset owners and investment managers with both risks and opportunities.

Mercer’s 2011 study on this topic established important foundations for investors, and its key findings still hold true. The study highlighted the importance of climate policies as a risk factor for investors, given their ability to incentivise meaningful changes in the energy sector.

This policy risk was not found to be more important than equity or credit risk premiums, but was considered potentially more important than factors such as the illiquidity premium. This study estimates the impact of climate change on returns to demonstrate why climate related risk factors should be standard considerations for investors.

This study helps address the following investor questions:

• How big a risk/return impact could climate change have on a portfolio, and when might that happen?

• What are the key downside risks and upside opportunities, and how do we manage these considerations to fit within the current investment process?

• What plan of action can ensure an investor is best positioned for resilience to climate change?

All statements and/or propositions in discussion prompts are meant exclusively to stimulate discussion and do not represent the views of OurEnergyPolicy.org, its Partners, Topic Directors or Experts, nor of any individual or organization. Comments by and opinions of Expert participants are their own.

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