EDHEC: Climate change poses major risk to infrastructure portfolios

A report by the EDHEC Infrastructure and Private Assets Institute highlights that climate change could devalue institutional investors’ infrastructure portfolios by up to 50% before 2050. This risk, tied to extreme weather events, is often underestimated in investment strategies.  

A report by the EDHEC Infrastructure and Private Assets Institute highlights that climate change could devalue institutional investors’ infrastructure portfolios by up to 50% before 2050. This risk, tied to extreme weather events, is often underestimated in investment strategies. 

According to Frederic Blanc-Brude, the institute’s director, current methods of assessing physical risks to assets, like toll roads, airports, and power plants, are inadequate as they don’t consider the increasing severity of future floods and storms. 

Despite government encouragement for infrastructure investments exceeding $4 trillion, limited data is available on the exposure and financial impact of climate-related risks on private assets. Presently, investors use imprecise methods based on current weather data, resulting in vague risk scores. The EDHEC report offers a more comprehensive analysis, finding that runaway climate change will significantly impact infrastructure investments by 2050. 

Blanc-Brude emphasizes the need for immediate action to document and manage these physical risks. The report follows an open letter to the European Insurance and Occupational Pensions Authority (EIOPA) urging regulators to raise awareness about climate change’s risk to investment portfolios. Blanc-Brude calls on regulators, governments, and all stakeholders to address this challenge as it could profoundly affect the stability of pensions, insurance systems, and financial stability. 

Read more: https://institutionalassetmanager.co.uk/extreme-weather-poses-significant-portfolio-risks/