Climate Could Reduce Asset Values

By the end of the century, investors could face a 50 per cent to 60 per cent downside to existing financial assets in a 2.7°C to 3.6°C world, compared with a 15 per cent loss in a well below 2°C transitioned world economy, says research by WTW’s ‘Thinking Ahead Institute.’ ‘Pay Now or Pay Later’ attempts to translate the economic costs and physical impact risks of climate change into effects on financial assets related to the investment industry. The approach used makes it possible to quantify the relative cost of transitioning the economy at slower or faster rates. “These findings should help investors understand that without significant efforts now to transition to a sustainable economic model, the associated physical risks driven by continuing emissions and climate change will potentially lead to major changes in global GDP and income levels in the coming century,” says Tim Hodgson, co-head of the institute. The research claims that in a quicker, highly co-ordinated and orderly transition, losses could be partly offset by the positive benefits of new primary investment in new energy infrastructure and that providers of this financial capital could expect to see future returns after the initial drawdown.