ASIA, 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.
Claudia Wong, Associate, Investments Asia at WTW, added: “Climate timeframes now overlap with investment timeframes. While climate change is a global issue, research shows that its effects on GDP and overall liveability may be particularly acute in Asia. As such, it is especially important for investors in Asia to deeply consider climate change’s effects on their portfolio (and vice versa). Not acting might appear the cheaper option in the short term, but over a horizon that is completely normal for investment funds, inaction is in fact the far more expensive choice.”
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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