The Institutional Investors Group on Climate Change (IIGCC) has published detailed advice on how to integrate climate risks and opportunities into investment processes.
In the same week as the boss of one of the UK's top energy companies warned the economic impact from climate change could prove to be worse than that from coronavirus, a group of top investors has set out new guidance for how investment firms can manage escalating climate risks.
IIGCC has today released two new reports (available here and here) that set out how investors and asset managers can integrate the risks and opportunities presented by the physical impacts of climate change into their investment processes.
The reports - which have been developed with specialist consultants Acclimatise and Chronos Sustainability, and support of the Universities Superannuation Scheme - draw on contributions from a number of leading investors, many of whom have stepped up climate risk management efforts in recent years.
The IIGCC said the reports aim to build on growing investor engagement with the systemic risks presented to investment portfolios presented by climate change and the transition towards cleaner technologies and infrastructure.
The guidance highlights how research from Cambridge University shows an additional $100bn of global costs linked to extreme weather events - such as floods, heatwaves and droughts - can be expected through to 2040 alone.
It also draws on an academic study cited by Schroders among others, which uses a "conservative" projection to suggest the global economy would face estimated losses in income of more than $9.5trn a year with 3C of warming, rising to over $23trn at 4C of warming.
"The ripple effect of physical impacts of climate change already with us is also clear," IIGCC said.
"The high-profile bankruptcy of US utility PG&E - directly linked to the worst wildfires in California's history - exemplifies the knock-on impacts of a changing climate, which companies and investors can expect to become more common."
The new guidance aims to help investors better understand the investment implications that result from the physical impacts of climate change; take practical steps to identify, assess and manage climate-related physical risks across their portfolios; identify ways to invest in solutions that support greater resilience to climate change and protect existing investments; and draw on additional available tools and data sources to identify and assess specific risks, and opportunities, across different asset classes.