By Amanda Morrall
Climate change is poised to become a "mega theme" for New Zealand and Australia over coming decades with fundamental implications for investors.
That's the underlying message contained in a landmark 132-page study jointly produced by Mercer and 14 major global institutional investors. The comprehensive report is believed to be the first of a kind measuring investment risks caused by climate change.
While the report paints an overall gloomy picture of times to come - with "extreme" environmental impacts, health, and food security costs exceeding US$4 trillion - the authors suggest investment opportunities in key sectors could offset some of the larger threats posed to portfolios.
With investment requirements in low carbon technologies predicted to reach US$5 trillion by 2030, the sector is deemed ripe for opportunity.
New Zealand and Australasia, considered among the most vulnerable regions along with Africa and Latin American, could benefit by being leaders in that area noted Helga Birgden, head of responsible investing for Mercer.
"This region (Australasia) in particular is vulnerable to environmental impacts and is therefore exposed to climate change as a mega theme in a range of areas. On the flip side, our region is leading developments in low carbon technology which creates investment opportunities and the potential for economic transformation.''
Birgden said it underscored the importance of strategic long-term investing planning that included a stronger consideration of the effects of climate change. In its report, Mercer sets out a framework and formula for rating climate change risk and opportunities among asset classes.
"It's important that in the face of climate change investors are developing new strategies to ensure their resilience over time,'' said Birgden.
While Mercer estimates that climate change could add a 10% risk to investment portfolios over coming decades, it suggests those risks can be mitigated by an increased allocation to "climate sensitive'' assets along with new investment opportunities.That included a greater exposure to infrastructure, real estate, private equity, agricultural land, timberland and sustainable assets.
Although the report notes a disproportionate impact across the different regions and sectors, those most likely to be affected include agriculture, forestry, health, coastal zones, energy and tourism. (For recent news on deforestation in Malaysia click here.)
Danyelle Guyatt, head of global research for Mercer's responsible investment team, said engagement with policy makers could prove a "potential weapon of significant power" for fund managers going forward.
Continued delays in policy action on climate change and disjointed efforts internationally could end up costing investors trillions, the Climate Change Scenarios - Implications for Strategic Asset Allocation, report suggests.
Bruce Duguid, head of investor engagement for Carbon Trust (one of several parties involved in the 18-month study), hailed the report as ground-breaking in that it quantified risk associated with climate change for the first time. He said it also underlined the growing importance of alternative 'green' investments.
"It demonstrates that unless this risk is tackled intelligently by increasing exposure to green asset classes, then long-term rewards will fall," he said in a statement.
Far from depriving potential beneficiaries of inheritances down the road, those with the foresight to pad their portfolios with 'green assets' would most likely be acting in their long-term interests, he added.
Key findings:
- Climate change could contribute as much as 10% to investment portfolio risk over the next 20 years.
- Investors could benefit from increased allocation to infrastructure, real estate, private equity, agriculture land, timberland and sustainable assets.
- Investment requirements in low carbon technology could be as high as USD$5 trillion by 2030.
- Institutional investors have numerous options for capitalising on opportunities and managing risks arising from climate change.
14 Comments
10% risk to portfolios...
Still its nice to see business /financial ppl now quantifying the risk....of course this is portfolio risk so just have assets in your portfolio that avoid these....and you'll be fine...so say food production would be way to risky to have in your portfolio........I hope their portfolio is edible.....
LOL.......what they to to mention is the % risk that our society wont be around as such due to AGW in about 100~150 years and tahts assuming 3Deg C.....6.5 Deg C if its right and the latest reports suggest it is (if we continue to do nothing) is a mass extinction event....wonder what that does to their portfolio....
regards
The way climate change influences the planet and us is already visible and noticeable, has enormous implications on the balance of nature. Natural disasters will destroy livelihood and businesses – food production will suffer – creating shortages and high food prices.
Insurance companies cannot fulfil their obligations anymore.
Small countries have to think small with bigger ideas –striving for a 100%NZpure economy.
We need not just products - we need solutions.
'Natural disasters'. Replace that with natural events maybe? There's always a host of species ready to swoop in and take advantage whenever the canvas is wiped clean so to speak following natural events.
Anyway, this discussion will = Can of worms....meet can opener.....
RJ, long time no hear! Good to see you're still out there. Did you not see this story last year? http://www.interest.co.nz/news/resigning-ceo-alloway-reveals-split-alli…
It has info on valuers in it. I'd go back to a comment I've made before though and say that, at the end of the day, both the boards of Hanover and Allied Farmers signed off on the deal so they're ultimately responsible. Funny to hear Hotchin say on Close Up last night that he feels like he was hoodwinked by Allied though!
I haer Allied Farmers is closing a couple of its rural stores in Taranaki today...
Christchurch – mostly flat – was nicknamed ‘Cyclopolis’ in the early 20th century. In 1924 the city council’s motor inspector estimated that there were 40,000 cyclists in the city – half the population. A 1936 traffic census found 11,335 cyclists passed one corner of Cathedral Square between 8 a.m. and 5.30 p.m., a rate of 19 per minute. Christchurch was home to 50,000 of the 250,000 cycles in New Zealand in the late 1930s.
http://www.teara.govt.nz/en/bicycles/1/4
NZ is been brain washed with news reports on the world is at an end.Like teenagers the country will do exact oppsite,we should be spending the money on cleaning up NZ first.
Not 1 cent should leave this country,this is why nobody is interested in backing this loser scheme.
You can't even walk down the street,cars driving around throwing all there crap out.
Look you can't borrow millions from Mr Mao and give it out to loser countrys that will never spend a dime here.
Look we need to turn this ship around,NZ needs to grow some balls.
This global warming is the next,dot com crash ,1987 sharemarket crash,finance crash,
NZ could have free buses an trains to reduce amount cars during peak times.
NZ should do what it does best,export good food,an get the nation back into work.
Go NZ,
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