Physical climate risk survey: those in the infrastructure investment industry are concerned and lack data

Summary:

Investors are concerned about physical climate risk and believe that they have almost no idea how it will affect unlisted infrastructure assets; that’s the clear message they delivered when we surveyed them on their views regarding the risks to the asset class.

Summary

Investors and other industry professionals are concerned about physical climate risk and believe that they have almost no idea how it will affect unlisted infrastructure assets; that’s the clear message they delivered when we surveyed them on their views regarding the risks to the asset class and whether they feel the advice and information they are getting is sufficient or even reliable.

This survey was conducted among investors and other professionals who were invited to a presentation of our latest research paper, “It’s Getting Physical“.

Key takeaways from the survey data, which polled 70 investment industry professionals including managers with more than USD2 trillion under management, are as follows:

• 97% of investors polled believe physical climate risk is significant.
• Some 76% believe it will have a medium or high effect on their infrastructure investments.
• However, only 16% think we actually know how it will impact these assets.
• 76% also stated that the climate scenarios used by financial institutions to evaluate transition risk to infrastructure are inadequate for the assessment of physical climate risk.
• That said, some three quarters said that EDHEC’s research had helped them to better assess these risks and their potential impact.

The survey also revealed that some two-thirds of those polled had carried out no evaluation of this physical risk themselves.

In very concrete terms, this survey confirms that despite the importance attributed to physical climate risk, investors and managers are not in a position to estimate its impact on their own portfolio. This inability is all the more detrimental in that investor portfolios, being highly concentrated, can be very strongly exposed to physical climate risk without awareness of this. This lack of knowledge of risks that can be very high at asset level and the high level of portfolio concentration is a situation that, in a context in which institutional asset owners are increasingly investing in private assets, notably unlisted infrastructure, raises important questions for the risk management and solvency measurement of insurance companies and pension funds.