SYDNEY, November 10, 2022 – By the end of the century, investors could face a 50 to 60% downside to existing financial assets in a 2.7C to 3.6C world, compared to a 15% loss in a well-below 2C transitioned world economy, according to new research by the Thinking Ahead Institute.
The research, entitled Pay Now or Pay Later, attempts to translate the economic costs and physical impact risks of climate change into effects on financial assets related to the investment industry. The approach used makes it possible to quantify the relative cost of transitioning the economy at slower or faster rates. It factors in climate tipping points and flaws in existing climate modelling and shows that risk increases rapidly as temperatures rise.
Tim Hodgson, co-head of the Thinking Ahead Institute, said: “These findings should help investors understand that without significant efforts now to transition to a sustainable economic model, the associated physical risks driven by continuing emissions and climate change will potentially lead to major changes in global GDP and income levels in the coming century.”
The research claims that in a quicker, highly co-ordinated and orderly transition, losses could be partly offset by the positive benefits of new primary investment in new energy infrastructure and that providers of this financial capital could expect to see future returns after the initial drawdown. Also that, in this scenario, there could be a boost from spending on wages and capital goods and associated cost reductions and productivity boosts.
Tim Unger, Head of Sustainable Investing for WTW in Australia said: “A big debate at COP27 is around who is going to pay for climate change. Developed nations haven’t met their commitment to helping poor nations transition and significant emissions going forward will come from there. For governments, the time for talk is over; action needs to be taken now and at a much bigger scale than we’ve seen to date to drive a sustainable future. The investment industry has a role to play in allocating capital to climate solutions, engaging with investee companies and advocating for more a significant response to the climate challenge. It is clear that the time for more ambition on action is now.”
The Thinking Ahead Institute was established in January 2015 and is a global not-for-profit investment research and innovation member group made up of engaged institutional asset owners and service providers committed to changing and improving the investment industry for the benefit of the end saver. It has over 55 members around the world and is an outgrowth of WTW Investments’ Thinking Ahead Group, which was set up in 2002.
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