Mercer has published the sequel to its widely-cited 2015 “Investing in a time of climate change” report. The report models three climate change scenarios, a 2°C, 3°C and 4°C average warming increase on preindustrial levels, over three timeframes - 2030, 2050 and 2100. It assesses the effects of both climate-related physical damages (physical risks) and the transition to a low-carbon economy (transition risks) on investment return expectations.
The underlying climate-economy model has been changed since the 2015 report and the analysis has been extended to include:
- Short-term stress tests for exploring the impact of changes in market views. The report illustrates two stress tests (sudden shift in likelihood of 2 and 4 degree scenarios) with portfolio impacts of -3% to +3% in less than a year
- Extra asset classes for sustainable variants of listed equity, private equity and infrastructure. The report suggests that switching 10%, 1% and 1% of a sample portfolio into these classes respectively returns c.0.2% pa more to 2030.