Investors today face a two-sided climate risk to their assets: a policy risk and a physical impacts risk.
Across the world, we see a tightening of climate policies and regulations to shift the economy away from fossil fuels. The restructuring is accelerated by the Paris Agreement, which sets clear aspirations to limit global warming to 1.5 or 2 degrees Celsius, and will affect all sectors and future investment patterns for global financial capital.
Secondly, investors are confronted with a physical impact risk, which is linked to potential adverse impacts from climate change such as extreme weather, floods or droughts, and sea level rise. Both physical and policy risks can result in real financial impacts to companies and assets.
At the same time, we need investments from the financial sector in low-carbon solutions and infrastructure that shift our economies away from fossil fuels while also reducing the risk for adverse climate impacts.