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Unhedgeable risk: How climate change sentiment impacts investment

Climate change entails “unhedgeable risk” for investment portfolios. While the response to action aimed at limiting warming below 2°C is shown to be negative in its short-term economic and financial impacts, the benefits of early action lead to significantly higher economic growth rates and returns over the long run, especially when compared to a worst-case scenario of inaction. The present study shows that certain types of portfolio benefit more than others.

Key points

In this report, the CISL (Cambridge Institute for Sustainability Leadership) shows that changing asset allocations among various asset classes and regions, combined with investing in sectors exhibiting low climate risk, can offset only half of the negative impacts on financial portfolios brought about by climate change.