Climate Change Could Cost Investors Trillions of Dollars Over Next 20 Years


Cover page cuverture Turning the Tide On Clima...

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New research from global consultancy Mercer carries a stern warning.

According to the report, Climate Change Scenarios – Implications for Strategic Asset Allocation, continued delay in climate change policy action and lack of international coordination could cost institutional investors trillions of dollars over the coming decades.

Already, we have seen how climate-related natural disasters (drought in Russia, floods in Australia, etc.) can have a devastating impact on regional economies. This new study takes a broader approach and analyses the potential financial impacts of climate change on investors’ portfolios, identified through a series of four climate change scenarios playing out over the next twenty years.

For example, the research found that by 2030:

  • Climate change increases uncertainty for long term institutional investors and as such, needs to be pro-actively managed.
  • Investment opportunities in low carbon technologies could reach $5 trillion.
  • The cost of impacts on the physical environment, health and food security could exceed $4 trillion.
  • Climate change related policy changes could increase the cost of carbon emissions by as much as $8 trillion.
  • Increasing allocation to “climate sensitive” assets will help to mitigate risks and capture new opportunities.
  • Engagement with policy makers is crucial for institutional investors to pro-actively manage the potential costs of delayed and poorly coordinated climate policy action.
  • Policy developments at the country level will produce new investment opportunities as well as risks that need to be constantly monitored.
  • The EU and China/East Asia are set to lead investment in low carbon technology and efficiency improvements over the coming decades.

“This report is unique and ground-breaking in quantifying the increased portfolio risk arising from global efforts to tackle climate change. It demonstrates that unless this risk is tackled intelligently by increasing exposure to climate sensitive assets, then long term rewards could fall,” explained Bruce Duguid, Head of Investor Engagement, The Carbon Trust, which collaborated with Mercer on the report. “The findings undermine the notion of a conflict between ‘green’ investing ‘ and acting in beneficiaries long term financial interests. This will have profound implications for fiduciary duties and places a clear obligation to increase analysis of the consequences of climate change for portfolio management.”

via Climate Change Could Cost Investors Trillions of Dollars Over Next 20 Years | 2Sustain.

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Update 2011: Hey, hey it’s “Davos time” again!


“Both governments and societies are less able than ever to cope with global challenges”

This quote (and the following), from the Global Risk 2011 report, suggest that there appears to be a realisation of the nature of what we are facing. I would be encouraged BUT, even if, “call me Dave” does put in an appearance to spout about a work in progress, or the wisdom he has gained from previous meetings with Nassim Taleb, it will have the usual hollow tone to it as he can’t even get the banks to meet commitments already given re SME businesses.

It is a very dangerous “game” that these guys are playing because, IF/WHEN another collapse occurs and contagion heaps more misery on UK citizens, one or both will pay a very heavy price for their stubbornness!

The current fragility is recognised. The nature and pace of systemic risk “known”. So too great a focus upon national interests and growth, at the expense of rebuilding global stability and resilience would be a a huge mistake. From where we are, ensuring survival would be a good starting point!

Clusters of risk

The report identifies three clusters of risk: the world economy, suffering in the aftermath of the financial crisis and weakened by budget deficits and the cost of ageing populations; the illegal economy driven by corruption, organised crime, illicit trade and failed states; and the every growing demand for resources such as water, food and energy.

The authors, drawn from a global network of business and political leaders, try to map how a single problem in each cluster can quickly escalate and cause a wider crisis affecting other areas.

Robert Greenhill, chief business officer at the WEF, said that while it had taken months for the Wall Street crash of 1929 to affect the rest of the world, it took only minutes for the crash of 2008 to make an impact.

The report speaks of “rapid contagion through increasingly connected systems and the threat of disastrous impacts” on fragmented societies where economic imbalances undermine social cohesion.

With economies weakened by the global financial crisis and government budgets strained by the cost of supporting rapidly ageing populations, “both governments and societies are less able than ever to cope with global challenges,” both man-made and natural disasters.

The WEF report, one of the gloomiest in recent years, warns that while nationalism is on the rise, there is also a “growing divergence of opinion between countries on how to promote sustainable, inclusive growth”.

Hey, hey it's "Davos time" again! Image via Wikipedia Now, I do consider that I have a pretty well informed and balanced view of the world! If I didn’t believe that to be true I would not have the nerve to write this blog on as wide a range of topics – NO it’s not all about complexity! In case there are any doubters I suggest you read these words of wisdom. As you do, kindly refrain from thoughts of “oh no, he’s off again..” 2011 will be a decisive year. We will finally se … Read More

via Get “fit for randomness” [with Ontonix UK]

Hey, hey it’s "Davos time" again!


Davos, Switzerland, views of the Congress Cent... 

Image via Wikipedia

Now, I do consider that I have a pretty well informed and balanced view of the world! If I didn’t believe that to be true I would not have the nerve to write this blog on as wide a range of topics – NO it’s not all about complexity!

In case there are any doubters I suggest you read these words of wisdom.

As you do, kindly refrain from thoughts of “oh no, he’s off again..”

2011 will be a decisive year. We will finally see whether we have learned the lesson or whether we continue to take decisions and behave as if the exuberance of the pre-crisis world would return.

It is a year where we should definitively recognize that we live in a completely new reality. The context for global cooperation, for national policies and for business models has substantially if not fundamentally changed. New movers have emerged at a much greater speed than previously foreseen. The Millennials, a generation born digital, will have a much stronger impact on social behaviour than we currently assume. Global climate change and resource security will influence our lives in substantial ways. The most decisive success factors on the global, national and business level will be the ability to anticipate, manage and mitigate risks. Read more of this post

Risks — the long term is more difficult to see


David Spiegelhalter playing with Arco Iris sam...

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Risks — the long term is more difficult to see

Great, short, podcast on risk: The public deals with risk using emotions more than mathematics. David Spiegelhalter argues there is good risk, and that we’re assessing and taking risks all the time in our daily lives. The bigger risks are often longer term risks and these are not as easy to see.

Obesity, lack of exercise, energy security and climate change are examples of future risk and the delayed affects of current activity. Making judgements of risk goes beyond statistical analysis. It also involves scientific judgement.

via Risks — the long term is more difficult to see – Farnam Street.

Prof. Spiegelhalter goes into much greater detail in this video (also in the “Fit for randomness collection” – see link in Headings) that gets particularly interesting after about 35 – 40 mins. when dealing with “uncertainty”.

He has a very easy, yet engaging, style. Which helps when dealing with, what, to many, is a pretty dry subject.