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The industries most at risk from the often overlooked physical impact of climate change

By Schroders
Published Last updated This article is more than 2 years old.

Golfball-sized hail. Wildfires that turn into infernos. Category 5 hurricanes.

When we read news coverage of climate-fueled disasters, we’re struck by reports of immediate, tragic human consequences. That makes sense–safety and survival hits closest to home. But what’s often overlooked is the fact that these climate events set off financial reverberations. In other words, even if you’re lucky enough to have lived outside the disaster zone, your life–and livelihood–can still feel the effects of natural disasters.

Correlation is costly

Increased greenhouse gas emissions are likely to continue their upward trajectory, bringing with them a corresponding rise in temperatures. And as global temperature rises, investors can no longer afford to ignore the potential rising risk climate change holds  for companies’ physical assets.

Source: EM-DAT, NASA, Schroders and UN FCC, May 2018

The current upward trend in greenhouse gas emissions means that a 0.6 degree temperature rise is essentially unavoidable.

This cause and effect is mirrored by another: the increase of climate-related natural disasters and economic damage. Recent years have seen record-shattering weather events. 2018, the hottest La Niña year on record, saw California’s largest wildfire to date, the Indian state of Kerala’s worst flooding in nearly a century, and the highest recorded temperature in African history.

Source: EM-DAT, NASA, Schroders and UN FCC, May 2018

And, over the past 40 years, the damage resulting from disasters has risen more than 4%. We can predict that the frequency and severity of climate change-related disasters will increase.

Source: EM-DAT, NASA, Schroders and UN FCC, May 2018

Protective Measures

The evidence is clear, so the question faced by any smart company is: What would it cost to insure against the physical risks posed by climate change for the remaining life of our assets?

The Sustainability team at Schroders, a UK-based investment manager, undertook extensive research into the impact on certain industries, based on analysis of around 11,000 listed companies across the world. Predictably, capital-intensive sectors located in more vulnerable geographic areas would be more affected–such as oil and gas and utilities, which have expensive and exposed infrastructure.

Source: Schroders based on latest available data as of June 2018. Based on calculations using data from Thomson Reuters, Germanwatch, MunichRe and SwissRe

Industries like technology and personal goods (which can be located far from weather events) would be only minimally impacted.

A Threat That Cannot Be Ignored

Especially for more exposed companies, it’s vital that forethought and planning occurs now, not later. Climate-related physical damage is a clear threat and the tragic fact is that it will only increase.

But, armed with the right assessment and analysis, investors can make calm, considered decisions about a volatile future–the value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Discover more here.

This article was produced on behalf of Schroders by Quartz Creative and not by the Quartz editorial staff.

Important Information: This information is a marketing communication. This information is not an offer, solicitation or recommendation to buy or sell any financial instrument or to adopt any investment strategy.  Any data has been sourced by us and is provided without any warranties of any kind.  It should be independently verified before further publication or use.  Third party data is owned or licenced by the data provider and may not be reproduced, extracted or used for any other purpose without the data provider’s consent.  Neither we, nor the data provider, will have any liability in connection with the third party data. The material is not intended to provide, and should not be relied on for accounting, legal or tax advice.  Reliance should not be placed on any views or information in the material when taking individual investment and/or strategic decisions.  No responsibility can be accepted for error of fact or opinion. Any references to securities, sectors, regions and/or countries are for illustrative purposes only.  The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.  Exchange rate changes may cause the value of any overseas investments to rise or fall. Past Performance is not a guide to future performance and may not be repeated.  The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. We accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to our assumptions or forecasts. Forecasts and assumptions may be affected by external economic or other factors. Issued in October 2018 by Schroder Investment Management Ltd, 1 London Wall Place, London EC2Y 5AU. Registration No 1893220 England. Authorised and regulated by the Financial Conduct Authority. UK13072

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