Australian money managers need to better measure the physical impact of climate change across their portfolios to avoid “catastrophic” long-term risks, according to a new survey.
(Bloomberg) — Australian money managers need to better measure the physical impact of climate change across their portfolios to avoid “catastrophic” long-term risks, according to a new survey.
An analysis of 53 funds with more than A$30 trillion ($20.2 trillion) under management globally showed just under a quarter have assessed their portfolio for these risks. Only 9% have implemented responses to mitigate the potential problems, the Investor Group on Climate Change report showed Tuesday.
“Physical climate risk is out there and it will have impacts on businesses and investment portfolios,” IGCC Chief Executive Officer Rebecca Mikula-Wright told Bloomberg. “Managers can either do the work to assess their specific exposures and make preparations, or ignore the evidence until they’ve cut down their options and lose control of their strategy.”
Companies, investors and lenders globally are seeking to improve data analysis to track portfolio risk as global warming increasingly impacts their business. In Australia, the catastrophic 2019–20 bushfires that killed 33 people and destroyed more than 3,000 homes saw a total of A$8 billion in damage, the IGCC report said.
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Improving the availability of data and analysis tools is key, said Mikula-Wright. A climate reporting framework that’s currently being considered by the Australian government was urgently needed, she said.
Some 20% of S&P/ASX 200 companies are assessing their physical climate risk, slightly less than investors surveyed, according to IGCC.
AustralianSuper, the nation’s largest pension firm, is among those with a stated net zero target.
“Climate change will have both physical risks and policy risks, you just have to factor that in,” AustralianSuper Chief Investment Officer Mark Delaney said in an interview. “I don’t think investors are going to be great at forecasting the weather, I just don’t think it’s a specialty, but you’ll be careful about businesses which have exposure to climate events.”
Severe weather events linked to climate change can also create potential liquidity issues for large funds such as pensions, according to the research arm of global investment manager PGIM. In certain extreme scenarios, some customers might need to draw down on retirement savings.
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“We think this is an evolving, emerging external liquidity demand on funds that CIOs need to be preparing for,” said Bruce Phelps, managing director of institutional advisory and solutions at PGIM, who said his firm is raising the issue with regulators.
(Updates with ASX assessment in 6th paragraph. An earlier version of this story corrected the investor % numbers in 2nd paragraph.)
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