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Expert advisory panel steers ILG framework on climate change portfolio risk

last modified Apr 10, 2015 10:46 AM
13 October 2014 – Investors are beginning to ask how global environmental trends such as increased pressure on land for food production, soil degradation and extremes of weather will affect the financial performance of countries, industries and firms.

The Investment Leaders Group (ILG) is developing work that attempts to identify the physical impacts of climate change on different asset classes (e.g. equities, fixed income, etc.), which would allow portfolio managers to hedge such risks, at least partially.     

The deliverable includes an assessment framework that is applicable to a financial model and an illustrative application of the framework to the specific case of climate impacts. The results of stress-testing the portfolio to different climate scenarios will also be shared with the ILG members as a basis for discussion on the risk exposures in light of different investment strategies.

During September 2014, project leader Dr Farzad Saidi, financial economist and CISL Fellow, held calls with ILG members’ economists to refine the research team’s understanding of the challenge facing investors with respect to environmental impacts and the kinds of decisions the framework must ultimately support. On 13 October 2014, the research team met with the project’s advisory panel, which includes individuals from national regulators, senior investment industry advisors and economic modelling experts. The panel provided technical feedback on both climate science and financial modelling, and a strategic steer on making the framework most relevant to key applications, including asset allocation. These inputs will guide the research team in the initial development phase. Early results are expected in April 2015. 

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Investment Leaders Group members. Cambridge Institute for Sustainability Leadership.

 *HSBC Bank (UK) Pension Scheme



Kajetan Czyz, Senior Programme Manager, Investment Leaders Group