Studies reveal risks investors face due to climate change

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Article
5 August 2015

The New Economics of Climate Change

Author: Katy Lederer, New Yorker

…Breaking climate-risk management out into four major factors (…technology, resource availability, impact, and policy), the authors recommend that long-term investors…“focus on risks and opportunities across and within asset classes.”...When most people think of the global financial system, they think of the investment banks, the hedge funds, and the distressed-asset investment firms. These are the frenetic first-movers in the market...Pension funds prefer much longer time horizons. They eschew long-term uncertainty, and in this they are the most obvious financial allies of those who are working to curb climate change…Losers like coal, the returns of which, according to the report, “could fall by anywhere between 18% and 74% over the next 35 years,” should be jettisoned to make room for new investments in renewables…In a time of accelerating climate change, an increasingly volatile reality will eventually come up against the limits of modern portfolio theory. The definition of fiduciary duty is therefore starting to expand, to include not only traditional and largely passive investment policy but also active stewardship of global average temperature… [refers to Chevron, Deutsche Bank, ExxonMobil, Mercer]

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Article
16 July 2015

All investors will feel effects of climate change in future, says Mercer report

Author: David W. Richardson, Impax Asset Management, on Huffington Post

“Climate Change: Identifying Future Makers And Future Takers”, 7 July 2015

...Building on their 2011 report on climate policy risk, Mercer has boldly plunged into the climate change debate advising their clients that it is real, it is here, and it will affect their portfolios…Mercer is urging clients to make a sea change in how they address the threats to their portfolios posed by climate change - a change in both who they hire to manage their investments and how they assess investment performance…While the energy sector may see the most pronounced effects, other sectors - from agriculture to pharmaceuticals - will all see profound impacts. Investors need to develop, or access, in-depth understanding of how these effects will translate into shareholder value - and ensure that they are not carrying uncompensated climate risk within their portfolios…The report concludes with an observation that, when it comes to climate change, all investors are 'future takers' - they will all feel the effects on returns of whichever climate change scenario comes to pass…

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Report
18 June 2015

Mercer report recommends managing investments based on climate change risks

Author: Mercer

"Mercer launches new global climate change investments report", 4 June 2015

A new report from Mercer modelling the potential impact of climate change on investments, has found investors cannot ignore the implications for investment returns. The research reveals investors can manage the risk most effectively by looking ‘under the hood’ of their portfolios and factoring climate change into their risk modelling, which requires a significant behavioral shift for most.The report, titled Investing in a time of climate change.” outlines actions for investors to manage key downside risks and access opportunities.  It is the culmination of a research project that began in September 2014 and will be launched in London today; ahead of negotiations for a new global climate agreement at the end of 2015 in Paris.The investment modelling supports the following key findings: Climate change will give rise to investment winners and losers...The biggest risk is at the industry level...[and] [a]sset-class return impacts will be material, but vary widely by climate change scenario.

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Article
15 June 2015

Guardian finds pension funds exposed to climate change risks due to investments in coal

Author: Damian Carrington & Caelainn Barr, Guardian (UK)

"Coal crash: how pension funds face huge risk from climate change", 15 Jun 2015

The pension funds of millions of people across the world...are heavily exposed to the plummeting coal sector, a Guardian analysis has revealed.It has also found that just a dozen people...own coal reserves equivalent to the annual carbon emissions of China, the world’s biggest polluter. The UN, which advocates a shift to clean energy, has more than $100m (£65m) invested in coal through its own pension fund.The Guardian examined the ownership of the biggest 50 publicly traded coal companies, ranked by the reserves of the fossil fuel they hold. If burned, these reserves would produce the equivalent of more than 10 years of global emissions. This alone could push the planet past beyond the 2C of climate change deemed dangerous by the world’s governments.A fast-growing, global fossil fuel divestment movement, backed by the Guardian’s Keep it in the Ground campaign, is having particular success in persuading investors to dump coal stocks. [Refers to: APG, Adani Group, Evraz, BlackRock, Allianz, Legal & General, Sasol, Vale, Rio Tinto, Arch Coal, Alpha Natural Resources, Consol Energy, Capital Group, Vanguard, State Street, Aberdeen Asset Management, AXA, UBS, J.P. Morgan, BNP Paribas, and PGGM]

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