Physical risk said to drive investors’ climate interest

Apr 22, 2020
Boards should view climate change as indeterminate-term problem, says sustainable investing expert

The physical risks stemming from climate change are the reason financial markets are increasingly focused on global warming, according to Julie Gorte, senior vice president for sustainable investing at Impax Asset Management and Pax World Funds.

Speaking on episode 114 of The Ticker, the regular podcast of Corporate Secretary sister publication IR Magazine, Gorte says: ‘It doesn’t matter if you emit nothing – you can still have climate risk. You could have been a completely carbon-neutral firm in Paradise, California two years ago, and you would still have [been] burned up [by the wildfires].’

Early interest in climate change among the investment community focused on carbon emissions, Gorte says, but she adds that markets are becoming more conscious of the direct risks to businesses posed by rising temperatures and extreme weather events, such as floods, fires and drought.

The cost to companies of insuring themselves against the physical risk of climate change could, in some cases, be as much as 4 percent of market value, according to an analysis by UK investment firm Schroders.

‘Anyone can have physical risks,’ Gorte climate change. ‘And we’re starting to see that. We saw the damages after Hurricane Harvey and the coastal storms, and we’re now starting to see damage estimates from the Australian fires.’

Gorte urges companies not to view climate change as either a short or long-term issue. ‘I would urge boards to start thinking of climate change as an indeterminate-term problem,’ she says. ‘It can happen any time. You don’t know when – we can’t predict.

‘You do know where the risks are growing, so you know the probability of being affected by something like sea-level rise is far greater if you’re in New Jersey than if you’re in Denver. On the other hand, if you’re in Denver you need to worry about fire insurance or fire, and the costs of that are going up.’

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