IIGCC moving ahead with investors’ guidance on physical climate risks and opportunities

IIGCC moving ahead with investors’ guidance on physical climate risks and opportunities

By Caroline Fouvet and Robin Hamaker-Taylor

During the first ever London Climate Action Week, members of the Institutional Investors Group on Climate Change (IIGCC) came together for a roundtable focusing on physical climate risks for investors. Part of a wider IIGCC initiative launched this spring, the roundtable aimed to support investors in their identification assessment and management of the physical risks associated with a changing climate.  Opportunities for investment in resilience have also emerged as an important part of physical climate risk management. The wider IIGCC initiative will produce a guidance document on understanding physical climate risks, due out this Autumn.

Facilitated by Acclimatise and Chronos Sustainability, the roundtable was a well-attended event, gathering a wide range of stakeholders from the investment industry, from infrastructure to impact investors. The event enabled participants to share insights into their progress to date on physical climate analysis and to discuss proposed guiding elements to undertake such work. Investors expressed the difficulty they faced to rely on current corporate disclosures, and how the guidance document could help them fill knowledge gaps regarding the key issues to consider when climate screening investments.

Five high-level messages on physical risk were presented by Acclimatise, which are crucial for investors to consider when looking at physical climate impacts. Among these, the team framed the difference between transition and physical-related risks as well as acute and chronic climate risks. Delving deeper, we stressed the need to look at previous impacts and the usefulness of conducting analysis that correlates weather and climate hazards with impacts on counterparties. This will be particularly useful for those looking to determine climate impacts over the next 10-20 year period, given the current locked-in levels of climate change. The need to design scenarios that consider a 4°C world was also highlighted, for those interested in assessing risks in the longer term. The discussion also included the importance of identifying climate-related thresholds for assets, and consideration of indirect climate effects at the macro-economic level, beyond damage to fixed assets.

The IIGCC guidance for investors on physical climate risks will be finalised this summer and undergo peer review from IIGCC members before its publication in autumn this year.

Cover photo by Jamie Street on Unsplash.

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