IIGCC initiative aims to help investors navigate the risks and opportunities stemming from the physical impacts of climate change
Investors seeking guidance how to navigate some of the physical risks and opportunities associated with climate change will soon be able to access a new tool.
A project launched today by the Institutional Investors Group on Climate Change (IIGCC) is set to analyse the physical risks posed by climate change and provide detailed guidelines on how investors can ensure these risks are accounted for in their investment research and decision-making processes.
Named Understanding Climate-Related Physical Risks for Investors, the initiative will set out a process that investors can use to identify, assess, and manage physical climate-related risks across their portfolios.
It will consider the tools and data sources available for performing this analysis, and guide investors on how to report physical risk as part of their wider reporting under the Taskforce on Climate-related Financial Disclosures.
Pension funds and asset owners increasingly identify climate change as one of the largest systemic risks in investment portfolios, contributing to growing interest in how investors can support the objectives of the Paris Agreement.
The UN Environment Programme has shown that the cost of necessary adaptation to climate change is likely to total a minimum of $140bn per year across the global economy by 2030 as sea levels rise and extreme weather intensifies, prompting warnings there is currently a major gap in adaptation financing.
The financing gap creates new investment opportunities where investors can help deliver climate resilient infrastructure and mitigate future losses from the impacts of climate change.
Yesterday UK Trade Secretary Liam Fox announced a new partnership between UK Export Finance (UKEF) and the Environment Agency to help UK suppliers with expertise in climate change adaptation deliver infrastructure projects and services across the globe.
However, there are also widespread fears that physical climate impacts such as sea level rise and increased storm risks could lead to huge losses and stranded assets for institutional investors. For example, a study by the LSE calculated that a 2.5C rise in global temperatures would put 1.8 per cent of the world's financial assets at risk. Worst-case scenarios could see losses soar to $24tn, or 17 per cent of the world's assets, the study found.
Meanwhile, the bulk of listed firms worldwide are still failing to provide comprehensive information on the climate related risks they face. Yesterday the TCFD released its latest update report, revealing that while the number of companies supporting its disclosure recommendations was increasing progress was "still too slow".
The IIGCC's new project is one of a range of initiatives within its Investor Practices programme that aim to address these concerns head-on. It is being developed with support from the Universities Superannuation Scheme, one of the UK's largest pensions funds, and technical input from specialist advisory firms Acclimatise and Chronos Sustainability.
"In many ways, adaptation is the missing issue in the climate change debate," said Stephanie Pfeifer, CEO at the IIGCC, which represents over 170 investors with around €23tr of assets under management. "IIGCC's new initiative will help investors to understand its importance and act on adaptation to climate change as an investment issue. This includes ensuring investors have the practical tools to account for the physical risks of climate change and are able to act on the opportunities found in addressing the issue, across both investment decisions and company engagement."
The new initiative came as S&P Global Ratings released a series of report cards detailing the environmental, social and governance risks and opportunities faced by various corporate and infrastructure sectors. The latest analysis bring S&P's ESG risk coverage up to 20 sectors, ranging from oil and gas to forest and paper products to retail.
Yesterday's TCFD update report confirmed comprehensive and effective climate-related disclosure is still yet to fully embed itself in the investor and corporate mainstream. But progress is being made the IIGCC and others appear to be working hard to provide the supporting infrastructure and guidance needed to make effective climate risk management the norm.
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