BlackRock, the world’s largest asset manager with $5.1 trillion of assets under management across the globe, discusses the art of pricing climate risk.
BlackRock concludes that greater transparency on climate risks and exposures will likely lead to a gradual discounting of companies and assets exposed to climate risk and increase the value of those companies and assets most resilient to climate risk.
“Most industries lag insurers when it comes to properly accounting for and pricing risks of climate-related events. Many equity investors ignore climate risk, and credit investors and ratings agencies do not routinely assess it. Real estate markets often ignore extreme weather risk, even in highly exposed coastal areas. Most asset owners do not measure their exposure to potentially stranded assets such as high-cost fossil fuel reserves that may have to be written off if their use is impaired by climate change regulation.
“Who can blame them? There is little evidence that assets more susceptible to climate change and related regulatory risks trade at a discount to the market. … In other words, we found there has been no climate change risk premium for equities.
“Yet this does not mean there will be no premium in the future. In fact, we think there likely will be one. … Greater transparency on climate risks and exposures will likely lead to a gradual discounting of companies and assets exposed to climate risk — and increase the value of those most resilient to these risks.”
See:
“‘Climate is King’ Says BlackRock; Companies Must Now Address Risk” | by Jan Lee, TriplePundit, 16 March 2017.
“The Price of Climate Change, Global Warming’s Impact on Portfolios” | BlackRock Investment Institute, October 2015.
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