As climate change exacerbates extreme weather events such as record-breakingAnother concern was imminent last month. The impact of global warming on businesses can burn people’s retirement savings.
Pensions and 401 (k) plans, along with other global economies, are “vulnerable” to climate risk, the Government Accountability Office told Congress in a recent report examining potential threats to federal officials. Told.And the cost from the following disasters,Forest fire, — And the long-term costs of migrating from To renewable energy — authorities warned that it could boost corporate and broader economic losses.
Emily Krebs, Global Director of Capital Markets at CDP, a non-profit organization that tracks climate information for investors, said, “Given this, my retirement portfolio is at stake. “Is it?” People are beginning to say. CBS Money Watch.
According to a 2020 analysis by Trucost, an affiliate of S & P Global Market Intelligence, about two-thirds of major global companies are “at high risk of physical climate change” buildings, plants, or other I owned an asset. According to research firms, the biggest risks come from wildfires, water scarcity, heat waves and hurricanes.
According to GAO, some sectors, such as fossil fuel companies, are “high risk”. The agency points out that the annual return on investment from the coal, oil and gas industries could decline by about 9% each year until 2050 in one scenario, citing a 2019 report led by advisory firm Mercer. doing.And it assumes that the temperature of the earth will not rise any further, As some scientists fear.
According to the report, the annual return on investment of utilities could decrease by 3%, while renewable energies such as solar could increase by up to 3%. Large companies that sell consumer staple foods such as food, beverages and household items are also vulnerable to extreme weather events due to growing concerns about access to water and risks to crops.
Mother of all risks
Investors are increasingly focusing on climate change, not only because of the increased risk, but also because of the opportunity to sell new products.BigLike BlackRock, we are adding “Environmental, Social and Governance” (ESG) funds to our portfolio lineup to meet the growing demand of investors. Investment in ESG mutual funds and ETFs increased to $ 51 billion in 2020, almost 10-fold more than in 2018, according to Morningstar.
John Hale, director of ESG strategy at Morningstar, told CBS MoneyWatch that concerns about climate change have grown in less common ways five years ago.
“You look at both the actual events that people may be involved in, whether you are a retirement worker or an asset manager who runs a fund. That’s one thing, “said Hale. “The other is the increasing momentum to regulate carbon emissions.”
In the United States, a professional money manager in 2019 managed one for every three dollars using a sustainable investment strategy, including one related to climate. That’s about $ 17 trillion in assets such as mutual funds and ETFs.
In contrast, it is difficult to accurately estimate the potential impact of climate on retirement portfolios in dollars and cents. This is because we need to make complex assumptions about potential environmental regulations, consequences such as sea level rise, and the impact of extreme weather on our physical infrastructure.
“This is a very complicated issue,” Hale said. “… I can’t say that professional investors understand it or are priced on the market.”
Need for better disclosure
Another Obstacle: Despite growing awareness of the potential climate impacts on businesses, at this point, how businesses quantify their threats and such “significant risks” There is no standard as to how much you need to disclose to the US Securities and Exchange Commission.The agency is currently under considerationRequire companies to disclose climate risks.
Unlike private money managers, a government committee that oversees the federal employee portfolio, called the Thrift Saving Plan, uses a “passive” investment strategy. The TSP is expected to give individual investors access to an “Investment Trust Window” that allows employees to make several choices, including ESG funds, from 2022 onwards.
Current law does not allow TSPs to direct investment or exercise voting rights to a particular company. Still, it provides over $ 700 billion in assets to 6 million participants and operates the largest planned benefits plan in the United States.
“With proper education, individuals in the plan may revert their investments. [account for] There is climate risk, but it rests on the shoulders of individual workers who are not necessarily investment experts. ”
He added that the wide range of what companies report or do not report can confuse risk assessments, even for experts.
Climate change does not only threaten investment funds aimed at protecting and growing retirement savings.The value of real estate — usually the single largest investment made by Americans — is also affectedDroughts and other extreme weather events have been exacerbated by global warming.
Homeowners can expectThe non-profit First Street Foundation said this year it was only related to floods, but premiums are expected to rise with sea level.
Residents affected by natural disasters often see lower credit scores, tend to lag behind bills, and can experience a series of economic consequences such as bankruptcy and homelessness...
Financial experts advise retirees and imminent people to consider whether they live in floodplains, tornado or hurricane alleys, or drought-prone areas. Olivia S, an economist who is the director of the University’s Boattner Center for Pensions and Retirement Security. This could include taking action to support the property, such as rebuilding stilt houses and roofs, Mitchell said.University of Pennsylvania Wharton School
“This is a very disruptive series of events to plan,” Mitchell told CBS Money Watch.