8/8/2023 0 Comments Signpost transition definitionImportantly, climate risk integration must be carried out at both the top-down and bottom-up levels to gain a holistic and nuanced view of a portfolio’s climate risks and investee companies’ climate resilience plans. Given the non-zero probabilities of all four climate scenarios and the fact that they will continue to change, investors should manage their portfolios nimbly and optimise for a range of climate outcomes. We anticipate further changes ahead, although the future is uncertain. Too Little Too Late is the marginally predominant scenario at this time, although encouragingly the Failed Transition probability has declined considerably thanks to country and industry commitments and policies. The GCS probabilities provide an outlook based on the state of the world today. This provides a useful reference point as we work towards strengthening the integration of climate risks in our portfolios, whether through more in-depth due diligence on physical risks or by accounting for transition risks through carbon price stress tests and/or climate value-at-risk analyses. The GCS enables GIC and our peers to think beyond binary outcomes of whether the world is on track to meet the climate goals set by the Paris Agreement, by allowing a more nuanced probability assessment. Investors must prepare to navigate heightened volatility when stronger climate actions materialise. Any rapid closing of the widening gap could precipitate disruptive change. There is a widening gap between countries’ words and deeds as countries appear to accelerate their commitments even as actual policymaking lags behind (Figure 4).
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