Much has been written about the physical impacts of climate change on the planet: heatwaves, droughts, rising sea levels, etc. There is less mainstream discussion of the potential impacts of climate change on global financial assets.
We dug deep into the academic literature to understand the estimated impacts and underlying assumptions. We found that $3-24 trillion, or 2-17%, of global financial assets are at risk of loss from climate change. Agriculture and Transportation (air, road, rail, sea) face the highest risk, with more than 60% of the financial value of these sectors vulnerable to climate change.
“Feedback loops” between the financial system and the macroeconomy could further exacerbate these impacts and risks. For example, climate-related damage to assets serving as collateral for loans could create write-offs that prompt banks to restrict their lending in certain regions, which could weaken household spending.
Asset managers cannot simply avoid climate risks by moving out of vulnerable asset classes if climate affects their entire portfolio of assets. In other words — unless investment dollars are deployed at scale to limit further warming — there’s no place to hide.
This report focuses on the issues raised by climate change from the financial asset value perspective. In our companion report, Scaling Climate Action: Aligning Investments to Sustainable Development Goal 13, we address how investors can factor climate change into their investment choices. While we are already seeing the impacts of climate change, we have not yet passed the point of no return from the more extreme scenarios of physical damage and value destruction highlighted in this analysis. There may be no place to hide, but there are plenty of ways to fight.
Download No Place to Hide?