Is climate risk for real is a question that investors should be prepared. ESG investment is here to grow. In their risk assessment models, nearly all the top investors factor in climate risk. The reason is pretty straightforward. Climate change is real and will negatively impact large parts of the world.
Nation-states have understood that climate change will hurt their economies. Climate change science tells us that global warming is happening for real. Countries and businesses will have to brace themselves for the negative impact of adverse events that will impact the whole world.
The earlier assumption was that climate change would impact industries dependent on fossil energy. I think climate events are rapidly overtaking the world. Despite the overwhelming scientific evidence on the massive impact climate will have on the globe, the consensus among nations in Glasgow has evaded.
Nations are still fighting over who should pay for the global transition from low carbon to a zero-carbon energy economy. The situation is unlikely to resolve itself. Vested economic interests of those parts of the global economy dependent on carbon fuels for their survival prevent consensus-building.
Climate change will impact whole swathes of the world. Everyone, people, businesses, and territories will get affected. Investors should brace themselves for the territory impact of climate change. The current risk ESG assessment models will require to be modified to include territory risk. Climate risk assessment is now integrated into investors’ investment models.
In the absence of verifiable climate-related information, investors make their climate-related commitments to limit financed emissions. This ability is further constraining both short and long-term credit. The absence of reliable information on climate-related impacts on companies leads to information asymmetry between investors and users of capital. Therefore, investors cannot hold companies accountable for reducing emissions and managing climate risks.
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Climate change: Financial risk and opportunities