Investors will face major hurdles as the impact of climate change takes hold, experts warned. A lack of reliable predictive data coupled with an inconsistent global approach to climate change would hinder investors in choosing their where to put their money.
Alan Brown, head of investment for global asset management firm, Schroders, said investment managers must start taking climate change into their decisions. The nature of the market is such that even what he called “amoral” investors who don’t care about a company’s environmental policies would be forced to take notice. “They only have to believe that others believe for us to see a change,” he explained.
Some investors will apply strict criteria in their stock selection, but he believes many institutional investors, especially those from public sector funds, will take what he called a fiduciary approach. “Fiduciary investors believe their prime role is to return the best profits from their investments. They will continue to have a range of investments, but would bias their forecasts a bit towards companies which are environmentally friendly and penalise those who are not. This approach delivers a higher return with a lower risk.”
For Raj Thamortheram, responsible investment director for AXA Investment managers, climate change presents both challenge and opportunity. He said, “We need to price on expectations of reality, not on previous experience, and that is quite different. We are dealing with a wide range of estimates of certainty and quantification is hard to come by. We will be slow in responding because we don’t know what is going to happen.”
He continued, “The answer is effective risk management.” Risk management already is an important skill for the insurance sector, and large insurers are intending to make this part of their mainstream risk management.
Rising insurance rates, added Alice LeBlanc, director of the office of environment and climate change, AIG Corporate Affairs, would affect property values and have implications for the property investment market. “Policies will push people towards investing in more sustainable housing and demand for that will increase,” she said.
Public pressure for climate change disclosure from major companies would also rise, according to LeBlanc, and contribute towards creating a specific standard for collecting data on the environment. AIG is currently working with the Intergovernmental Panel on Climate Change (IPCC) toward creating a protocol in the US.
Katy Dowell is senior reporter for Insurance Times.