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To predict climatic changes over the long term may create opportunities to invest


Alain Thériault

11 April, 2019 09:30

Photo : Freepik

Invest in keeping in mind that the climate could warm by an average of 2oC by the end of the century will achieve returns that are additional, according to a recent report of the world’s leading Mercer on climate change, entitled, ” Investing in a Time of Climate Change.

The model presented by Mercer in its report forecasts three scenarios of climate change : climate change the average warming of 2 °C average warming of 3 °C, and a mean warming of 4 °C. It is warming above the levels observed in the pre-industrial era. In his model, Mercer ranges each warming scenario on three distinct time periods : 2030, 2050, and 2100.

Mercer said that warming scenarios projected over long time periods allow you to better predict the potential impact of natural disasters. Mercer has also added to its model to 2019 for the period up to 2100, absent of its previous report published in 2015.


“One of the main conclusions of the report reveals that investing in anticipation of a scenario of temperature increase of 2 °C is both an imperative and an opportunity. It is an imperative, since for almost all asset classes, regions and periods, a scenario of temperature increase of 2 °C gives rise to yields projected improved compared to the scenarios of 3 °C or 4 °C, ” said Helga Birgden, head of global responsible investment at Mercer.

If the traditional sectors may suffer losses under a scenario of 2 °C further, the transition to an economy with low carbon emissions could present you with many opportunities to generate positive returns, adds Ms. Birgden.

“The modelling shows that a greater weighting in long-lived assets in the portfolios can improve returns. The evidence is irrefutable and strengthen the findings of the report of the 2015 Mercer on climate change that support the need for urgent action to limit global warming to less than 2 °C, ” she said.

Mitigate the risk of disasters

Mercer also argues that investors may consider short-term and long-term, to mitigate risk and take advantage of the opportunities in terms of investment. A firm of consulting actuaries believes that its model allows investors to assess the financial risks related to climate change, for a total portfolio, encompassing all asset classes and sectors of activity. The model aims to quantify how climate change could affect yields, over several decades.

Hot topic in Canada

The subject is particularly attached to the Canadians, believes Mercer. “Recent research reveals that the climate warming in Canada is two times faster than in the rest of the world. This is why investment is sensitive to changes in climate is crucial for all institutions in this country, including for institutional investors, such as pension funds, ” says Karen Lockridge, principal advisor, responsible investment Mercer Canada.

According to Ms. Lockridge, a pension fund must have a long-term vision. “In a modern world, this means ensuring that the distribution of the assets to be protected against the risks and uncertainties resulting from climate change. “

Volatility of returns in the short term

Mercer believes that investors should also focus on the possible short-term impacts of investments in times of climate change. “Sudden changes in returns are more plausible that yields annual average stable, which is why a sensitivity analysis is an important tool,” one can read in his report.

“If one anticipates a greater probability of a global warming of 2 °C or 4 °C and increased sensitivity of the markets, revisions of prices could be observed on the markets and lead to variations of the order of -3 % to 3 % in less than a year in the returns of diversified portfolios modeled “, said Ms Birgden.

Paris agreement

The report offers the investors to bet on of the business in a perspective where they are the ” architects of the future “. Mercer recommends that companies exposed to the risks of transition warming of 2 °C to establish their business plans accordingly. It also recommends to governments to take emergency measures to implement the Paris Agreement, including commitments even larger to combat climate change.

“Investors should take account of climate change at each stage of the investment process : the establishment of the beliefs of investment, policy, and process until the decisions of constitution of the portfolios,” says Deb Clarke, global head of investment research at Mercer.

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