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Asset-specific climate risks to improve investor analysis – report

Investors are not sufficiently incorporating impacts of climate-related risks in analyses and should revisit their assumptions with better asset-specific data, a report released Thursday by the BlackRock (BLK) Investment Institute said.

The report, "Getting physical: Scenario analysis for assessing climate risks," uses new tools and data to articulate the potential impact on different U.S. asset classes, including municipal bonds, utilities, commercial real estate and commercial mortgage-backed securities.

"The combination of advances in data sciences, including geolocation data and climate modeling, have allowed us to more precisely assess the investment implications of climate-related risks," Brian Deese, global head of sustainable investing for BlackRock, said in a statement. With many of the firm's clients long-term investors, "as a fiduciary, we're working to help them integrate ESG factors across an entire portfolio to enhance long-term risk-adjusted returns with built-in resilience," he added. "Asset-level analysis is key for investors."

We find that the risk posed by more frequent and severe weather events such as hurricanes and wildfires are not fully reflected in the price of many assets, including U.S. utility equities. A rising share of municipal bond issuance is set to come from regions facing climate-related economic losses. And many high-risk commercial properties are outside official flood zones."

BlackRock worked with Rhodium Group to assess climate-related risks facing specific asset classes currently and under a range of future climate scenarios reaching out to the year 2100. Specific findings by asset class are available in the report.