Scenario analysis helps investors understand the climate crisis and the associated investment risks.
The devastating consequences of climate change are becoming increasingly apparent and are expected to remain at the forefront of the global political discourse for the foreseeable future.
An increasing number of financial institutions are proactively seeking to understand their exposure to climate change-related risks and opportunities.
This has led to the development of climate scenario analysis as a tool to help investors undertake a structured exploration of a range of plausible future outcomes to quantify how certain climate-related financial risks and opportunities could manifest.
Mercer’s key conclusions
A successful transition is an imperative for long term investors.
Sustainable allocations may protect against transition risk while most growth assets are highly vulnerable to physical risk.
Sector exposure is key.
Investors should be aware of future pricing shocks.
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