AB: As Climate Change Gets Hyperphysical, Investors Should Too
AllianceBernstein highlights the growing importance of physical climate risks in investment decisions, beyond traditional transition risk analysis. A CDP Worldwide survey shows a 24% increase in companies acknowledging climate change's direct financial impact in 2023. Physical risks, both chronic (rising temperatures, sea levels) and acute (extreme weather events), can significantly impact business operations through property damage, production disruptions, and supply chain issues.
The report emphasizes the need for localized risk assessment, utilizing tools like the Natural Hazards Index and Aqueduct Water Risk Atlas. A case study of a Brazilian state-owned bank demonstrates how physical climate risks affect financial institutions through agricultural lending and insurance exposure to extreme weather events.
AllianceBernstein sottolinea l'importanza crescente dei rischi climatici fisici nelle decisioni di investimento, oltre all'analisi tradizionale dei rischi di transizione. Un sondaggio di CDP Worldwide mostra un aumento del 24% delle aziende che riconoscono l'impatto finanziario diretto dei cambiamenti climatici nel 2023. I rischi fisici, sia cronici (aumento delle temperature, innalzamento del livello del mare) che acuti (eventi meteorologici estremi), possono influenzare significativamente le operazioni aziendali attraverso danni alla proprietà, interruzioni della produzione e problemi nella catena di approvvigionamento.
Il rapporto sottolinea la necessità di una valutazione dei rischi localizzata, utilizzando strumenti come l'Indice dei Rischi Naturali e l'Aqueduct Water Risk Atlas. Uno studio di caso di una banca statale brasiliana dimostra come i rischi climatici fisici influenzano le istituzioni finanziarie attraverso il credito agricolo e l'esposizione assicurativa a eventi meteorologici estremi.
AllianceBernstein destaca la creciente importancia de los riesgos climáticos físicos en las decisiones de inversión, más allá del análisis tradicional de riesgos de transición. Una encuesta de CDP Worldwide muestra un aumento del 24% en las empresas que reconocen el impacto financiero directo del cambio climático en 2023. Los riesgos físicos, tanto crónicos (aumento de temperaturas, niveles del mar) como agudos (eventos climáticos extremos), pueden afectar significativamente las operaciones comerciales a través de daños a la propiedad, interrupciones en la producción y problemas en la cadena de suministro.
El informe enfatiza la necesidad de una evaluación de riesgos localizada, utilizando herramientas como el Índice de Riesgos Naturales y el Aqueduct Water Risk Atlas. Un estudio de caso de un banco estatal brasileño demuestra cómo los riesgos climáticos físicos afectan a las instituciones financieras a través de préstamos agrícolas y la exposición a seguros ante eventos climáticos extremos.
AllianceBernstein은 전통적인 전환 위험 분석을 넘어 투자 결정에서 물리적 기후 위험의 중요성이 커지고 있음을 강조합니다. CDP Worldwide의 조사에 따르면, 2023년 기후 변화의 직접적인 재정적 영향을 인정하는 기업의 수가 24% 증가했습니다. 물리적 위험은 만성적(온도 상승, 해수면 상승) 및 급성(극단적 기상 사건)으로 나뉘며, 재산 피해, 생산 중단 및 공급망 문제를 통해 기업 운영에 상당한 영향을 미칠 수 있습니다.
보고서는 현지화된 위험 평가의 필요성을 강조하며, 자연재해 지수 및 Aqueduct 물 위험 아틀레스를 같은 도구를 활용해야 한다고 제안합니다. 한 브라질 국영 은행의 사례 연구는 물리적 기후 위험이 농업 대출과 극단적인 기상 사건에 대한 보험 노출을 통해 금융 기관에 어떤 영향을 미치는지를 보여줍니다.
AllianceBernstein souligne l'importance croissante des risques climatiques physiques dans les décisions d'investissement, au-delà de l'analyse traditionnelle des risques de transition. Un sondage de CDP Worldwide révèle une augmentation de 24% des entreprises reconnaissant l'impact financier direct du changement climatique en 2023. Les risques physiques, qu'ils soient chroniques (hausse des températures, élévation du niveau de la mer) ou aigus (événements météorologiques extrêmes), peuvent avoir un impact significatif sur les opérations commerciales en raison de dommages matériels, de perturbations de la production et de problèmes dans la chaîne d'approvisionnement.
Le rapport met en avant la nécessité d'une évaluation des risques localisée, en utilisant des outils comme l'Indice des Risques Naturels et l'Aqueduct Water Risk Atlas. Une étude de cas d'une banque publique brésilienne illustre comment les risques climatiques physiques affectent les institutions financières par le biais des prêts agricoles et de l'exposition aux événements météorologiques extrêmes.
AllianceBernstein hebt die wachsende Bedeutung physischer Klimarisiken für Investitionsentscheidungen hervor, die über die traditionelle Analyse der Übergangsrisiken hinausgeht. Eine Umfrage von CDP Worldwide zeigt einen Anstieg um 24% bei Unternehmen, die die direkten finanziellen Auswirkungen des Klimawandels im Jahr 2023 anerkennen. Physische Risiken, sowohl chronische (steigende Temperaturen, Anstieg des Meeresspiegels) als auch akute (extreme Wetterereignisse), können die Unternehmensabläufe erheblich beeinträchtigen, etwa durch Sachschäden, Produktionsunterbrechungen und Probleme in der Lieferkette.
Der Bericht betont die Notwendigkeit einer lokalisierten Risikobewertung, unter Verwendung von Werkzeugen wie dem Naturgefahrenindex und dem Aqueduct Wasser-Risiko-Atlas. Eine Fallstudie einer brasilianischen Staatsbank zeigt, wie physische Klimarisiken Finanzinstitute über landwirtschaftliche Kredite und Versicherungsexpositionen gegenüber extremen Wetterereignissen beeinflussen.
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Integrating the physical toll of climate change helps investors spot key risks-and opportunities.
NORTHAMPTON, MA / ACCESSWIRE / November 1, 2024 / AllianceBernstein
Sara Rosner | Director of Environmental Research and Engagement
Markus Schneider | Senior Economist-EEMEA
Patrick O'Connell, CFA | Director-Fixed Income Responsible Investing Research
Zac Greear | Climate Research Analyst-Responsibility
Climate-focused investing traditionally emphasizes how well industries are transitioning to low-carbon economies, such as responding to climate-friendly regulations, greener technologies and shifting consumer needs. But transition risks and opportunities are just one of several lenses to assess climate change's impact on the investment landscape. Physical risks and opportunities are another.
Knowing Physical Threats Enhances Risk Assessment
The number of companies that acknowledge climate change's direct financial impact grew
The threats are very real, however. Physical risks can be chronic-as with rising global temperatures and sea levels - or acute, as in the case of an extreme heatwave or a hurricane. Any of these can levy substantial financial burdens on businesses and global economic growth alike.
The financial toll of physical risks manifests in several ways, but often through local property damage or total loss. There are also costs for stranded or delayed production capacity, plant closures, supply chain disruptions and legal liabilities from not adapting assets and communities to be more resilient.
Disasters can also hurt local households, from job losses to residential displacement, which has implications for labor supply and customer demand for products and services. As these local extremes add up, their macro implications can throttle global productivity, trade and government revenues, as well as sway inflation and interest rates.
Physical Risks Won't Disappear, Prompting More Ways to Cope
As a global disruptor, climate change remains one of a handful of mega-forces likely to permanently change how the world lives, works and consumes - all directly affecting countries, assets and companies on many levels.
For example, population centers will likely shift within countries and across continents as crops fail or it becomes too hot to work outdoors. Agriculture-dependent regions could be the most vulnerable, not only to food scarcity but to modern slavery.
Emerging-market (EM) regions are especially vulnerable to physical risks-frequently the result of flooding or drought. Thankfully, we're seeing governments and the private sector deploying more coping mechanisms across these regions. These include adaptation plans, multi-hazard warning systems and risk assessments, which we believe help offset some of EM's high exposure to physical risk (Display). This suggests that even countries with high physical-risk potential could take effective steps to manage it - and improve creditworthiness.
Data Show Climate Change Is Global but Impact Is Local
Florida hurricanes, Canadian wildfires, Abu Dhabi flooding - when hazards strike, they're not only more frequent and costly but also hyper-regional. That's why we believe that understanding physical risks at the local level helps investors better assess their potential financial damage, even for globe-spanning entities.
Obtaining local physical-risk data can be challenging. In the US, some granularity can be mapped using the Natural Hazards Index (NHI), which AllianceBernstein developed in partnership with the Columbia Climate School. The index tracks 14 types of extreme-weather disasters and assigns risk scores to some 75,000 underlying census tracts. Meanwhile, the global Aqueduct Water Risk Atlas, which tracks potential water-specific risks, pinpoints areas facing the highest risks to potable water quality and quantity.
Another hurdle in evaluating physical risks is tying them to companies' physical locations, since they tend not to be uniformly disclosed. However, Climate TRACE (Tracking Real-time Atmospheric Carbon Emissions) is making headway, offering models to help investors identify which of a global firm's locations are high emitters. Combined with Aqueduct Water Risk Atlas data, the results can effectively map where a global company's local physical risks are greatest (Display). Many leading data sources, such as Moody's, S&P and MSCI, also now offer physical risk-scenario analysis tools-although sometimes with conflicting insights that require careful assessment.
Engaging* directly with companies can also reveal much about their physical risk exposures and plans to address them. Engagement involves meeting with leaders, touring facilities and participating in shareholder meetings, among other activities. In many cases, more intel can be gained from dialogue than from data, especially when physical climate-risk reporting is still relatively new for many companies. This was the case with a large South American bank, whose most significant financial threat comes from - of all things - farming.
Banking on Agriculture: A Study in Physical Risk
The bank is a majority state-owned enterprise based in Brazil, the world's largest agricultural exporter. About
The bank's primary physical risk exposure stems from the country's epic regional flooding and drought. Both can disrupt farm production and upend the livelihood of its largest borrower group, who could be more likely to skip payments or default. The bank is also exposed through its insurance affiliate, which offers crop insurance, using farmers' equipment and cash flows as collateral. Add in potential physical damage to branch locations and office equipment in the danger zones, and the picture looks grim.
A bank this large and with inherent government backing should have the resources to manage such risks and pursue the opportunities we see for it. Through our engagement with the bank, for example, we discovered helpful mitigation measures underway, such as spreading the insurance liability to willing participants in-country and abroad and more diversification across agricultural regions and crop types (Display).
We think inviting more government input and along with helpful solutions is another opportunity and should be in both the bank's and the country's interests, considering that agriculture represented about
The takeaway: physical risks can touch any industry in unique ways, but how companies respond can create opportunities that are just as unique.
Catastrophic and costly weather events continue to turn up the dial on physical and economic damage, creating life-altering disruption to people and property in every region. That's why we believe that investors should seek opportunities stemming from the preparation, response and recovery surrounding climate-related hazards.
A growing number of relevant data sources, combined with engagement and an active investment approach, are especially helpful in this nascent area. Together, they can offer climate-focused investors effective tools to not only assess physical risks but also their potential effect on asset prices across regions, sectors, industries and companies of all stripes.
*AB engages issuers when it believes the engagement is in the best financial interest of its clients.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to revision over time.
Learn more about AB's approach to responsibility here.
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SOURCE: AllianceBernstein
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FAQ
What was the increase in companies acknowledging climate change's financial impact in 2023 according to AB's report?
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