Growing Investor Awareness of Climate Risk

Earlier this month, I returned home to Boulder, Colo., as a guest of the National Center for Atmospheric Research and its Engineering for Climate Extremes Partnership, or ECEP, for which I serve as an advisory panel member. ECEP links industry, commerce, society, academia and government with a mission to develop well-communicated predictions and advice on the impacts of weather and climate extremes to support robust and resilient decision-making. 


In my latest panel appearance, I put a twist on my presentation, moving away from scientific research and inviting the audience to consider investor decision making. Why? Because I am sensing growing investor awareness of climate risk. Seven months since the Paris global climate agreement, I perceive this movement that has grown stronger because of commitments and thought leadership by the private sector. 


Immediately after Paris, at the influential Davos World Economic Forum, leaders welcomed the release of the 10th Global Risk Perception Survey. In it, the failure of climate change mitigation and adaptation finally percolated to the top of the list of most likely risks. And the financial community is not waiting to act on this risk.


Five engagements illustrate the financial community’s leadership in striving to engage in climate action:

1.     Beyond Response and Recovery, an introduction to the Zurich flood recovery program Flood Resilience Alliance, which provides an overview of the threat posed by floods and the measures that can be taken to improve resilience.

2.     Sustainable Accounting Standards Board Climate Risk: SASB Technical Bulletin 2016-01 that outlines the risks posed by climate change according to an asset class.

3.     The Financial Stability Board’s Phase I Report of the Task Force on Climate-Related Financial Disclosures. It reports how the financial sector can incorporate climate­related issues into financial reporting. 

4.     Standard & Poor’s Climate Change Will Likely Test the Resilience of Corporates’ Creditworthiness to Natural Catastrophe that that describes how more frequent and extreme climate events could pose a threat to corporate credit ratings in the future.

5.     Mercer’s Investing in a Time of Climate Change discussing why investors should consider climate-related risk factors in all key considerations.

To be sure, some in financial services companies have led adaptation thought leadership for a long time.  The insurance industry is particularly active as experts in future risk:

·      Swiss ReEconomics of Climate Adaptation (ECA) – Shaping Climate­ Resilient Development: A Framework for Decision­ Making

This ECA methodology provides decisionmakers with a fact base to answer questions about potential climate-related loss in a systematic way. By understanding the impact of climate change on their economies and actions to minimize that impact, decisionmakers can integrate adaptation with economic development and sustainable growth. 

·      Willis Group Holdings Coalition of private and public sector drives “1-in-100” initiative to integrate natural disaster risk into the financial system. An introduction to the Willis Group’s “1-in-100” disaster resilience initiative.

I’m hopeful this financial industry interest in climate risk continues to gather momentum, as it is likely to result in increased private investment in climate adaptation projects.