Climate change creates a wide range of adaptation, physical and transition risks. These risks can have material impacts on companies, investors, financial institutions and entire economies. And they will only increase until we stem greenhouse gas (GHG) emissions and then begin to reduce GHG levels in the atmosphere.
In this paper, we review the state of knowledge about the financial impacts of climate change for investors. This includes research examining the estimated economic costs of climate change, the materiality of those economic costs to investors, and the potential impact of climate risks on asset values.
Executive summary
- A growing body of research demonstrates the financial materiality of physical, transition and adaptation risks to companies, issuers and their investors.
- Investment to reduce or mitigate GHG emissions will lower the costs of physical risks arising from climate change, but trillions of dollars must also be spent to adapt the global economy to the new climate regime.
- Though many experts believe markets are widely underestimating climate-related risks, studies show that lower-emitting companies and those with transition plans have delivered financial outperformance.