Stocktake: Markets woefully unprepared for climate change risks

The recent damning UN report on climate change raises the question, are investors sufficiently prepared for climate risks? Absolutely not, according to a new global study, What Do You Think about Climate Finance?

In an anonymous survey, the researchers polled 861 finance academics, professionals, regulators and policy economists about asset markets and climate risks. Respondents were 20 times more likely to believe that climate risk is currently being underestimated by stock markets as opposed to overestimated.

Insurance markets were also deemed to be way too sanguine, while the level of denial is even greater among property investors; here, respondents were 67 times more likely to say risks were being underestimated as opposed to overestimated.

Was the survey biased towards those more concerned about climate change? No – even respondents who reported low concern about climate change were “far more likely” to believe financial markets are underpricing climate change risks.

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This reflects concern about regulatory risk – the top climate-related risk over the next five years, according to respondents. Over the next 30 years, however, physical climate risks are seen as the top risks. Overall, there is a near-universal belief that asset markets are underpricing climate risk.

That belief is either “way off”, say the researchers, or markets “have a lot of catching up to do”.