According to Mary Pieterse-Bloem, Endowed Professor of Financial Markets at Erasmus School of Economics and Global Head Fixed Income in the Global Investment Center of Private Bank of ABN AMRO, investors have still fail to price in climate risks. Not paying attention to this, until everyone wants to go at the same time through the same exits, seems to her a very unwise investment strategy. In her column for IEX Profs, Pieterse-Bloem explains why it is not very wise to dismiss climate change and the associated risks.
‘Climate risks are part of investment portfolios in many ways,’ says Pieterse-Bloem. ‘Think, for example, of investments in buildings along the coast where the water level rises or in areas that will increasingly by affected by hurricanes and other natural disasters.’
According to Pieterse-Bloem, there are many concrete examples, but climate risks are roughly divided into two categories:
- Physical risks relates to investments that are directly affected by rising sea levels, extreme weather, water scarcity and the like.
- Transition risks relates to investments that are affected by the change to a CO2-neutral world as a result of new government policy, new technology, or because consumers make different choices.
‘Because these are risks, investors tend to look to the potential losers rather than to the potential winners. And we all have these losers in our portfolio for almost the full amount, because climate risks are hardly priced in. If you look at the average portfolio in terms of climate risks, you can say that the proverbial brown elephant is still in it.’
- More information
Read the entire column at IEX Profs, 3 September 2019 (in Dutch).