Nearly 90 per cent of global investors believe climate change is important but 40 per cent have yet to incorporate it into their investment process, according to new research from PGIM.
“The humanitarian and economic catastrophe unleashed by COVID-19 revealed investor’s vulnerability to slow-burning risks with unpredictable timing,” said PGIM chief operating officer Taimur Hyat.
“Climate change is the next crisis that will radically reshape investors’ risks and opportunities. Investors that take action now can play an influential role in driving the global transition to a low-carbon economy while optimizing their portfolios for a greener future.”
The research also found that few investors use alternative data sources to understand cross-portfolio climate risk – such as satellite imagery or air quality data – and that investors shouldn’t rush away from so-called “brown industries” when there are opportunities to engage with companies that want to change their ways.
“The best opportunities for investors may not be conveniently branded as ‘green’. In other words, a simplistic strategy that divides the investment world into ‘brown’ villains and ‘green’ heroes is not the most effective approach to achieve environmental or fiduciary objectives,” PGIM said.
There also exists the possibility for climate change to have a similar system-wide impact to COVID-19, which shattered industries not directly exposed to the pandemic through supply chain disruption and health restrictions.
“Investors must look beyond the obvious physical risks to uncover “hidden” climate risks across their portfolios. As the coronavirus pandemic has laid bare, supply chains represent key vulnerabilities for manufacturers,” PGIM said.
“Climate change has the potential to unleash the same kind of disruptive impact through supply chains and industries not typically considered as having high climate risk, for example, semiconductors and pharmaceuticals.”
