According to the first ever comprehensive climate risk profiling of more than 300 UK institutional investors, some 50% face major climate threats to the value of their portfolios.
The analysis, which was conducted by consultancy LCP for its report The tip of the iceberg, analysed the exposure of UK institutional investors to climate risks based on their allocation across asset classes and, therefore, their estimated exposure to the five types of climate risk it has identified (equity, credit, data availability, transparency and asset transition risks).
Dan Mikulskis, Partner at LCP, commented:“These types of investments can present serious climate risks. With spread levels reaching their lowest point for more than a decade, there is a question mark over whether any climate transition risks are realistically priced within corporate bonds. Because of the rising allocation to this asset class and the under-the-radar nature of this risk we believe this is potentially the most significant class of climate risk faced by investors.
“At the same time, in private markets there simply isn’t the data to make any accurate judgements around carbon intensity or climate alignment, making climate risks difficult to quantify and address.”