ARLINGTON, VA, November 10, 2022 — By the end of the century, investors could face a 50% to 60% downside to existing financial assets in a 2.7-degrees-Celcius to 3.6-degrees-Celcius world, compared with a 15% loss in a well below 2-degrees-Celcius transitioned world economy, according to new research by leading global advisory, broking and solutions company WTW’s (NASDAQ: WTW) Thinking Ahead Institute.
The research, titled Pay Now or Pay Later, attempts to translate the economic costs and physical impact risks of climate change into effects on financial assets related to the investment industry. The approach used makes it possible to quantify the relative cost of transitioning the economy at slower or faster rates. It factors in climate tipping points and flaws in existing climate modeling and shows that risk increases rapidly as temperatures rise.
“These findings should help investors understand that without significant efforts now to transition to a sustainable economic model, the associated physical risks driven by continuing emissions and climate change will potentially lead to major changes in global GDP and income levels in the coming century,” said Tim Hodgson, co-head of the Thinking Ahead Institute.
The research claims that in a quicker, highly coordinated and orderly transition, losses could be partly offset by the positive benefits of new primary investment in new energy infrastructure and that providers of this financial capital could expect to see future returns after the initial drawdown. In this scenario, there could also be a boost from spending on wages, capital goods and associated cost reductions in addition to boosts in productivity.
Isabella Martin, senior associate at the Thinking Ahead Institute, said: “Climate time frames now overlap with investment time frames. Not acting might appear the cheaper option in the short term, but over a horizon that is completely normal for investment funds, inaction is in fact the far more expensive choice.”
The Thinking Ahead Institute was established in January 2015 and is a global not-for-profit investment research and innovation member group made up of engaged institutional asset owners and service providers committed to changing and improving the investment industry for the benefit of the end saver. It has over 55 members around the world and is an outgrowth of WTW Investments’ Thinking Ahead Group, which was set up in 2002.
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