Innovest Strategic Value Advisors, Inc.

Climate Change & the Financial Services Industry


Courtesy of Innovest Strategic Value Advisors, Inc.

Climate change represents an unprecedented and highly complex threat to long-term
economic interests across the spectrum of finance and insurance industry activities. The
Intergovernmental Panel on Climate Change has confirmed that the combined effect of
increasingly severe climatic events and underlying socio-economic trends (such as
population growth and unplanned urbanization) have the potential to undermine the
value of business assets, diminish investment viability and stress insurers, reinsurers, and
banks to the point of impaired profitability and even insolvency. In the extreme case,
whole regions may become unviable for commercial financial services. At present,
worldwide economic losses due to natural disasters appear to be doubling every ten
years, and have reached almost $1 trillion over the past 15 years. If current trends persist,
the annual loss amounts will, within the next decade, come close to US$150 billion.
At the same time, actions taken to reduce greenhouse gas (GHG) emissions by
government policymakers and business leaders are already creating new threats and
opportunities across the entire spectrum of the financial services and insurance industry.
Intensifying regulatory and competitive pressures on industrial GHG emitters may well
have serious implications for credit risk, investment performance and shareholder value
creation, particularly in emissions-intensive sectors.
As the potential economic consequences of climate change come into focus, company
directors, executives, pension fund trustees, and institutional investors will be
increasingly compelled to respond. Financial institutions will need to estimate the full
extent of consolidated financial liabilities – throughout all sectors of the economy and in
all regions of the world - to fully inform their investment banking, asset management,
equity research and portfolio risk management activities.

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