The report describes the findings of a recent study conducted by Mercer, a consulting and investment services firm, which analysed the impact of climate change on strategic asset allocation of institutional investment portfolios. The report further recommends steps for investors to take in order to adjust to these impacts.
Strategic asset allocation has traditionally used historical quantitative analysis to evaluate the risk and future performance of investments. However, with regards to climate change, the uncertainty and qualitative aspects that are inherent to climate change do not make traditional methods of investment evaluation an accurate predictor of risk or future performance, the report says.
In order to adapt the study to the unique challenges posed by climate change evaluation, Mercer analysed four potential climate change scenarios in order to anticipate future investment. The scenarios, which project up to 2030, were produced by the Grantham Research Institute at the London School of Economics and the consulting firm Vivid Economics. The scenarios spanned a range of possible climate change outcomes, from a highly aggressive policy response to no change in the global dependence on fossil fuels.
The study’s results showed that uncertainty in climate change policy will be a significant source of risk for long term investment portfolios. It has the potential to increase overall portfolio risk by as much as 10 percent, which is equal to US$8 trillion.
The report recommends that investors manage the risk posed by climate change by altering their strategic asset allocation techniques; portfolio diversification should spread risk across climate-sensitive assets as opposed to traditional, conservative assets. Investments in assets that promote a low-carbon economy, such as timberland, agricultural land, and other sustainable assets, will reduce the long term portfolio risk, says the report. Estimates from the study indicate that investment opportunities in this type of asset may be as large as US$5 trillion by 2030.
Furthermore, the study showed that the course of action that is in the best interest of investors is an aggressive policy stance towards climate change. The report urges investors to communicate the financial effects of delay in climate change policy to policy makers in order to facilitate a faster response to climate change.
More information ; The full report can be accessed on Mercer’s website....
ICTSD Reporting; “Climate Change Scenarios - Implications for Strategic Asset Allocation Executive Summary,” MERCER, 15 February, 2011; “Climate Study Finds Investor Risks/Rewards,” MSN, 16 February, 2011; “Investments Worth Trillions at Risk from Climate Change: Study,” REUTERS, 16 February, 2011; “Trillions of Dollars at Risk for Investors from Climate Change,” THE WORLD BANK BLOGS, 15 February, 2011. For the latest updates PRESS CTR + D or visit Stock Market news Today
No comments:
Post a Comment