In its report, Pay Now or Pay Later, the Thinking Ahead Institute projects that in a 2.7 to 3.5-degree world, the risk to investors far outstrips the 15 per cent losses of a below 2-degree world economy.
The research aimed to quantify the cost of transitioning the economy sooner or later, and to “translate the economic costs and physical impact risks of climate change into effects on financial assets related to the investment industry”.
Its findings show that risk increases rapidly as temperatures rise.
Tim Hodgson, co-head of the Thinking Ahead Institute, said: “These findings should help investors understand that without significant efforts now to transition to a sustainable economic model, the associated physical risks driven by continuing emissions and climate change will potentially lead to major changes in global GDP and income levels in the coming century.”
Moreover, the research suggested that moving quicker through an orderly transition could see losses partly offset through the benefits of new primary investment in new energy infrastructure, with providers of this financial capital tipped to see future returns after the initial drawdown.
Tim Unger, head of sustainable investing for WTW in Australia, said: “A big debate at COP27 is around who is going to pay for climate change. Developed nations haven’t met their commitment to helping poor nations transition and significant emissions going forward will come from there.
“For governments, the time for talk is over; action needs to be taken now and at a much bigger scale than we’ve seen to date to drive a sustainable future. The investment industry has a role to play in allocating capital to climate solutions, engaging with investee companies and advocating for more a significant response to the climate challenge.
“It is clear that the time for more ambition on action is now.”
The 2022 United Nations Climate Change Conference, COP27, is currently underway in Sharm El Sheikh, Egypt, running from 6 to 18 November.
