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$30trn investor group launches physical climate risk guidance

IIGCC says physical impacts of climate change are being overlooked and warns of legal risk

Investors have “tended to downplay” the significance of physical impacts of climate change in favour of a focus on transition risks, according to new investor guidance on from the Institutional Investors Group on Climate Change (IIGCC).

The $30trn investor group warns that “investors who focus their strategic ‘climate change’ responses only on transition will be failing in their fiduciary responsibilities and may be creating legal liabilities”.

Addressing Physical Climate Risks, Key Steps for Asset Owners & Asset Managers provides a summary of practical steps investors can begin to take to address the physical risks climate change poses to their portfolios.

It is published alongside and refers to the IIGCC’s more comprehensive 84-page guidance, Understanding Physical Climate Risks and Opportunities.

'Relatively little attention has been paid to what the physical impacts of climate change might mean for investment portfolios'

The IIGCC worked with consultants Acclimatise and Chronos Sustainability on the reports with the support of Universities Superannuation Scheme, the UK's largest private pension scheme. 

The guidance offers practical guidance, such as recommending questions that investors should ask companies and asset managers. It also suggests that investors should require managers to conduct relevant scenario analysis on their investment portfolio, switch to investment managers that are known to better manage physical climate risks, and encourage investment managers to strengthen governance and management of climate change-related risks. 

The larger guidance document also includes illustrative case studies, and discusses examples of physical risks and their analysis, covering US utility PG&E – which went bankrupt after the 2018 Californian wildfires – and investment giants Blackrock and Aviva, among others. 

Blackrock is mentioned for its work on scenario analysis of asset classes linked to “fixed long-term physical assets in the USA”.  Aviva is included for its work on physical climate risk analysis as part of the United Nations Environment Programme Finance Initiative’s investor pilot project on implementing TCFD recommendations.