Trillions of dollars at risk for investors from climate change
Here is a trillion dollar question: How will the portfolios of long-term asset managers like pension funds, foundations and endowments be affected by climate change? These institutions, in contrast to commercial banks, are legally obligated to take a long-term view in managing their returns. A new report by Mercer, a leading consulting and investment services firm, provides the first look at yet another window on the complex consequences of climate change—the implications for strategic asset allocation.
A headline result of the study is the estimated increase of up to 10 % in overall portfolio risk, primarily due to policy uncertainty—equivalent to as much as US$8 trillion by 2030. Traditional equity and bond holdings—usually the most conservative forms of hedging against uncertainty –- are most at risk of underperformance. In contrast, carefully selected investments in climate- sensitive sectors may actually reduce overall portfolio risk.
The International Finance Corporation (IFC) and UK’s Carbon Trust, along with 14 institutional investors collectively managing over US$2 trillion, funded the analysis, which was carried out by Mercer. The analysis looks at impacts by sector, region, and asset category (bonds, private equity, real estate, etc.) and builds on a set of climate change scenarios out to 2030 developed by the Grantham Research Institute at the London School of Economics and the consulting firm Vivid Economics.
By embarking on several climate change initiatives, including an assessment of progress in implementing the 
This weekend, I had the opportunity to participate in a panel discussion on the `Transformational Priorities for Africa in a Changing Climate’ as part of the World Bank Group Spring meetings in Washington DC. In my remarks, I spoke on how Africa is often perceived as a place which offers only adaptation opportunities. I argued that the continent offers mitigation opportunities too – especially in the area of deforestation.