Portfolio managers are addressing physical risks in real time and no longer considering them as a separate ESG factor
Many fund managers have been considering environmental impacts on their investments for years, but the increased frequency of weather events has pushed some to step up their risk assessments.Eastern Canada and much of the U.S. recently experienced what weather experts refer to as a “heat dome,” with temperatures feeling hotter than 40 degrees with the humidex.
Nalini Feuilloley, head of responsible investment at BMO Global Asset Management in Toronto, says asset managers are considering physical risks less as a longer-term theme “being discussed from a research and an insights perspective, and we’ve moved into understanding the materiality of some of these developments in real-time.”
“If you look at it top-down, and you’re an investor that’s more generally invested in the economy, then your portfolio, as a whole, has that risk,” she says. There’s “chronic physical climate risk” in mortgage lending, she says, with regions “where banks would have mortgages that become less and less insurable from a commercial standpoint.”
Brian Kernohan, chief sustainability officer for private markets at Manulife Investment Management in Boston, says the way risk is assessed for his clients, particularly in the real assets space, has become intertwined with physical climate risk.
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