Financial markets failing to incorporate climate impact risks

Financial markets failing to incorporate climate impact risks

Financial markets failing to incorporate climate impact risks 1024 768 Davis Cherry

The World Economic Forum blog just posted an excellent piece covering the disconnect between the impending known climate risks to businesses and the lack of movement from major banks and credit agencies to incorporate these risks into their investment ratings. Author Megan Rowling, in her piece “Why financial markets ignore climate change at their peril” notes that a very small percentage of companies experience downgrades (60 out of 6,300 since 2005) due to material physical risks such as storms and droughts. However, she notes that,

Standard and Poor’s Ratings Services said the prospect of more frequent and severe climatic events would make the information companies disclose about their exposure to natural disasters more relevant to their credit rating in future.

Adapt Ready believes S&P’s prediction is an inexorable trend and that, even if not out of internal motivation, external financial ratings will drive a stronger and stronger demand for climate impact information.