Investor initiative to produce new guidance on understanding physical climate risks

Investor initiative to produce new guidance on understanding physical climate risks

By Robin Hamaker-Taylor

The Institutional Investors Group on Climate Change (IIGCC) has launched a new project to develop guidance for investors on how they integrate the risks and opportunities presented by the physical risks of climate change in their investment research and decision-making processes.

The project will develop an IIGCC investor guide focusing on physical climate risk analysis with technical input from the specialist advisory firms Acclimatise and Chronos Sustainability, in collaboration with IIGCC members.

IIGCC is leading the initiative with the support of the Universities Superannuation Scheme (USS), one of the UK’s largest pension funds. Stephanie Pfeifer, CEO, Institutional Investors Group on Climate Change, explains: “In many ways, adaptation is the missing issue in the climate change debate. IIGCC’s new initiative will help investors to understand its importance and act on adaptation to climate change as an investment issue. This includes ensuring investors have the practical tools to account for the physical risks of climate change and are able to act on the opportunities found in addressing the issue, across both investment decisions and company engagement.”

David Russell, Head of Responsible Investment at USS, adds: “One of the key contributions of this project will be to focus on the risk posed by climate change across a range of asset classes. This will include sectors that are both dependent on access to water and other environmental resources, and those potentially impacted by a changing climate.”

The new guidance will include an introduction to the investment implications of physical climate hazards, and will collate information on tools and data sources needed to manage physical climate risks. Available later this summer, the guidance also aims to propose a process that investors can go through to identify, assess, manage and disclose climate-related physical risks and opportunities across their portfolios.

The United Nations Environment Programme has shown that the cost of necessary adaptation to climate change is between $140 to $300 billion per year across the global economy by 2030 alone, and point to a major gap in adaptation finance[. This offers potential new investment opportunities, in which investors can help build broader climate resilience, while also mitigating future losses otherwise incurred. This initiative will help investors better understand the nature of this opportunity.

The initiative is delivered as part of IIGCC’s ‘Investor Practices’ programme, which helps asset owners and managers better assess and manage both climate risk and opportunity, and to report on their actions more effectively.

Cover photo by Stephen Dawson on Unsplash.

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