Given the long duration of real asset life cycles, intensifying climate hazards are expected to dramatically affect investment performance in the coming years. However, many investors aren't actively protecting their assets and are failing to optimize their portfolios.
Given the projections for increased frequency and severity of climate-related events, it is critical that institutions properly assess climate risk at all stages of an investment — measuring hazard, exposure and vulnerability of their real assets — and then optimize their portfolios for climate resilience through a combination of due diligence, forward-looking design, assertive disruption management and thoughtful divestment of certain assets.
As weather and other climate-related disasters intensify globally, so do the economic effects. According to the National Oceanic and Atmospheric Administration, the number of billion-dollar (inflation-adjusted) climate disaster events in the U.S. alone grew to 91 from 2010 to 2017, from 28 during the 1980s. And the average annual costs rose to $81 billion from 2010 to 2017, from $17 billion in the 1980.