The Cambridge Institute for Sustainability Leadership, a research institute of the University of Cambridge working to build leadership capacity to tackle critical global challenges, published in November 2015 Unhedgeable risk: How climate change sentiment impacts investment.
The report examines how climate change may be the 21st century’s biggest threat to humankind, and investors are starting to realise that they’re not immune to the risks. Most existing studies have focused on analysing the direct physical effects of future climate change over the long term (post 2050), then discounted these risks to provide an estimate of their short-term impact.
The new report takes a different approach and looks at the short-term risks stemming from how investors react to climate-related information, from policy decisions and technology uptake, to market confidence and weather events. Anticipating how the market may respond to long-term climate risks attempts to bridge the gap between the geophysical impacts of climate change over the longer term and the potential effects that climate risk may have on the economic and financial markets today.
This study sheds light on the vulnerability and resilience of different portfolio types to climate change-related risks. With this information, investors can start to understand how to hedge risk and invest in assets with lower potential of being affected by climate change risk.
