Investors Underappreciate Climate-Related Risks in Their Portfolios – BlackRock Report
NEW YORK--(BUSINESS WIRE)--Apr 4, 2019--Investors are underpricing the impact of climate-related risks, including more frequent and intense extreme weather events, and need to rethink their assessment of asset vulnerabilities, according to a new report by the BlackRock Investment Institute.
While the physical manifestations of climate change are clear, including rising sea levels, and more intense hurricanes, wildfires and droughts, how investors incorporate these risks into their analysis is not. The report, “Getting physical: Scenario analysis for assessing climate risks ” [ www.blackrock.com/physicalclimaterisk ] uses new tools and data to articulate the potential impact on different U.S. asset classes, marking an important next step as investors increasingly recognize the importance of integrating climate-related risk factors in the investment process.
“The combination of advances in data sciences, including geolocation data and climate modeling, have allowed us to more precisely assess the investment implications of climate-related risks” said Brian Deese, Global Head of Sustainable Investing, BlackRock. “Asset-level analysis is key for investors. We find that the risk posed by more frequent and severe weather events such as hurricanes and wildfires are not fully reflected in the price of many assets, including U.S. utility equities. A rising share of municipal bond issuance is set to come from regions facing climate-related economic losses. And many high-risk commercial properties are outside official flood zones.”
Many investors recognize that climate-related risks are growing. However, until recently, most investors did not have access to data showing the potential impact at the asset level of both direct physical risks and indirect economic impacts as well. Working with Rhodium Group, BlackRock leveraged 160 terabytes of data to assess these climate-related risks facing specific asset classes, both today, and under a range of future climate scenarios reaching out to 2100. Specific findings of BlackRock’s research include:
Commercial Real Estate and CMBS
A firm-wide commitment
BlackRock has long believed that sustainability-related issues – including climate-related risks – have real long-term financial impacts, with increasing relevance in the investment process.
“Many of our clients are long-term investors and, as a fiduciary, we’re working to help them integrate ESG factors across an entire portfolio to enhance long-term risk adjusted returns with built in resilience,” said Deese.
In addition to incorporating sustainability considerations across our investment platform, BlackRock currently manages a broad suite of dedicated sustainable investment solutions, ranging from broad ESG strategies to thematic and impact strategies that allow clients to align their capital with the low-carbon transition and the UN Sustainable Development Goals. BlackRock also manages one of the largest renewable power funds globally. With deep expertise in alpha-seeking and index strategies, across public equity and debt, private infrastructure, commodities and real estate, BlackRock continues to build scalable products and customized solutions across asset classes that support no-carbon, low-carbon, and energy transition solutions.
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PUB: 04/04/2019 07:00 AM/DISC: 04/04/2019 07:00 AM