Washington, D.C., June 4, 2015 --
A new study released today by IFC, a member of the World Bank Group, and
Mercer shows that implications of climate change pose serious risks for
investors and that integrating climate risks into investment strategies
can help with investor return outcomes due to greater awareness of exposure
to climate -sensitive sectors and asset classes.
The study, “Investing
in a time of climate change,”
led by Mercer and supported by IFC, in partnership with the Federal Ministry
for Economic Cooperation and Development, Germany and the UK Department
for International Development (DFID), is an update to a 2011 report.
Climate Change Scenarios – Implications for Strategic Asset Allocation
(2011). This report which was groundbreaking, was supported by IFC. The
other public partner was CarbonTrust. It estimates the impact on investment
returns through to 2050 and offers insights on how to improve the resilience
of an investment portfolio in a time of climate change.
“This new study led by Mercer could not be more timely on the road to
the UN climate conference in Paris," said Christian Grossmann, IFC
Director for Climate Change. "The study can help investors address
uncertainty by guiding them on assessing their exposure to climate risk
and improve the resilience of their portfolios. It can also send a clear
message to policy-makers that resolving the uncertainty around the policy
direction of carbon pricing will be an important first step toward transitioning
to a low carbon economy,” he concluded.
The study warns the investors not to expect that the future will mirror
the past, particularly at a time when economic growth is heavily reliant
on an energy sector powered by fossil fuels. It cautions the investors
that impact on returns from climate change are inevitable – irrespective
of which climate scenario -- 2 or 4 degree -- unfolds. The new research
also points to opportunities for investors in an economy that would transition
to a 2 degree low carbon scenario, laying out the fact that this scenario
would not jeopardize financial returns for long-term diversified investors.
Chair of Mercer’s Responsible Investment team, Jane Ambachtsheer, said,
“Whilst it is challenging, we have attempted to quantify the potential
investment impacts of climate change. We recognize that markets do not
always price in change; they are notoriously poor at anticipating incremental
structural change and long-term downside risk until it is upon us.”
The report also finds that climate change will give rise to investment
winners and losers, with the energy sector becoming the most impacted;
the coal industry will be the biggest loser while the renewable sector
will win. In the near term, investors need to ask what if climate change
related policies are introduced more rapidly than anticipated and in the
medium term, investors need to consider how to manage asset class and industry
sector risks and impacts on returns.
Tackling climate change remains a strategic priority for IFC – one of
the world’s largest financiers of renewable energy for developing countries
and one of the largest issuers of green bonds. Last year IFC surpassed
its climate-smart investment target of 20 percent of IFC’s long-term financing,
reflecting a growing appreciation that clean energy, resource efficiency
and climate change adaptation represent areas of opportunity for the institution
and the clients.
IFC, a member of the World Bank Group, is the largest global development
institution focused exclusively on the private sector. Working with private
enterprises in about 100 countries, we use our capital, expertise, and
influence to help eliminate extreme poverty and boost shared prosperity.
In FY14, we provided more than $22 billion in financing to improve lives
in developing countries and tackle the most urgent challenges of development.
For more information, visit www.ifc.org/climatebusiness
Change Scenarios – Implications for Strategic Asset Allocation (2011).
This report which was groundbreaking, was supported by IFC. The other public
partner was CarbonTrust.