🏷️Are investors under-pricing climate risks?🏷️

Amidst a world grappling with the intensifying impacts of climate change, the issue of how to price climate risks has gained prominence. It has become increasingly evident that it is dangerous to under-price climate change’s financial costs.

How are #climate risks under-priced?

⛔️In July, a ground-breaking report from Dr. Steve Keen and commissioned by Carbon Tracker, highlighted the ‘Climate Risk Delusion’: the alarming gap between the true financial impacts of climate change and their representation in markets.

🇺🇸Investors' historical focus on the costs of decarbonization often overshadow the physical impacts of climate change. This is especially apparent in US corporate disclosures.

🔁The underpricing of climate risks perpetuates climate change, creating a vicious cycle of financial and environmental instability. What are the implications for financial markets?

🎲According to Keen’s report, ‘Loading the DICE Against Pensions’, underpricing climate risks has profound implications for global #pension wealth and institutional investments.

🏦Financial institutions grappling with the complexity of climate risks may inadvertently expose pension wealth to potential shocks and erosion.

📉According to Financial Times analysis, in a "net zero" scenario involving ambitious decarbonisation, cumulative returns over 40 years were 10% lower compared to a baseline without climate change. The most pessimistic outcome resulted in nearly 40% lower cumulative returns.

The underestimation of climate risks emerges as a double-edged sword, fostering both financial instability and exacerbating climate change. As discussions around global pension wealth and the sustainability of institutional investments gain prominence, these reports call for recognition of the intrinsic link between climate realities and financial futures. The stakes are nothing less than the fate of pension funds, the stability of markets, and the resilience of our planet.

Read more here.

What do you think? How can we cost climate risks more effectively?

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