Researchers from the University of Cambridge Institute for Sustainability Leadership (CISL) found short-term deviations in climate change could decrease global investments by as much as 45 percent.
The study analyzed short-term risks that come from how investors respond to climate change-related news. Findings showed portfolio reallocation can save half of the perceived loss. Investors cannot cushion the blow of the other "unhedgeable" portfolio loss unless a drastic climate change solution takes place.
"This new research indicates that no investor is immune from the risks posed by climate change, even in the short run," said Jake Reynolds, Sustainable Economy director of CISL.
Researchers used three scenarios to analyze short-term impacts of climate change.
- Two degrees: scenario wherein the global community maintains the global warming to two degrees Celsius (35.6 degrees Fahrenheit)
- Baseline: scenario wherein there is a continuation of past trends and no substantial change in the government's willingness to take action against climate change (business-as-usual)
- No mitigation: scenario wherein there is no special interest given to climate change issues, rather, self-interest pursuance hopes to result in adaptive responses to climate change-related impacts as they arise
In both two degrees and no mitigation scenarios, findings showed short-term climate change sentiment can impact reduction in the global economic growth in the span of five to 10 years as part of the economic adjustment outcome. As for long-term impacts, researchers found that the global economy will grow much fast in the two degrees scenario (3.5 percent annually), exceeding both baseline (2.9 percent annually) and no mitigation (2 percent annually) scenarios.
Researchers found the awareness of potential climate risks could reduce global investment earnings by 45 percent and fixed income earnings by 23 percent. About 53 percent of the perceived loss can be avoided through investment reallocations but the 47 percent is deemed unavoidable.
"One of the key findings (from the modelling) is that it reveals the potential for very significant, short-term financial impacts for investors whereas previously, I think, a lot of the analysis had pointed to the longer term, multi-decadal impacts," said Andrew Voysey, CISL's Finance Sector director.
The Cambridge researchers published their findings online in the CISL site.
