Report: Finance sector underestimates the cost of climate change

The cost is rising fast and the sector's pricing is behind the curve says global industry body, but Canada is more in tune than most

Report: Finance sector underestimates the cost of climate change
Steve Randall

Finance professionals need to have more tools to adequately integrate climate change analysis into the investment process.

That’s a key finding of a new study from global investment professionals association CFA Institute which warns that, although there is a wide range of estimates of the cost of climate change, “they are all bad.”

Around 75% of global C-level executives in the investment industry surveyed believe that climate change is an important issue, rising to 76% among those in Canada.

However, only about 40% of all respondents incorporate climate change information into their investment process globally, although 45% Canadian respondents do so.

Even so, 57% of Canadian investment professionals said they don’t plan for climate change because of a lack of measurement tools to provide a proper analysis.

“The role of finance is to allocate capital efficiently in society. That process is increasingly taking the impact of climate change into account. Financial professionals need to be equipped with the best tools and training around climate change analysis in order to make investment decisions that take climate change into consideration,” said Margaret Franklin, CFA, President and CEO of CFA Institute.

Recommended action
The report includes recommendations CFA Institute makes to investors and policymakers to better integrate climate change analysis into what they do, such as:

  • A price on carbon: CFA Institute calls on policymakers to ensure that regulatory frameworks for carbon markets are designed to deliver transparency, liquidity, ease of access for global market participants, and similar standards across jurisdictions, in order to underpin robust and reliable carbon pricing.
  • Carbon price expectations included in analyst reports: CFA Institute recommends that investment professionals account for carbon prices and their expectations thereof in climate risk analysis.
  • Increased transparency and disclosure on climate metrics: CFA Institute notes that the investment industry is coalescing around the Sustainability Accounting Standards Board (SASB) and Task Force on Climate-related Financial Disclosures (TCFD) standards for climate-related disclosures, which are the most relevant and succinct climate-related disclosure standards for addressing the materiality of climate-related risks.
  • Engagement with companies on physical and transition risks of climate change: CFA Institute asserts that investors should engage with issuers to ensure that climate data, scenario analysis, and related disclosures are sufficiently thorough to support robust climate risk analysis in the investment process.
  • Education within the investment management profession: Investors need to continue to educate themselves about climate change in order to provide clients with the climate-related analysis they require.
  • Policymakers: Investors need to continue to urge policymakers to craft regulations to ensure that investors have the tools they need to do the work of finance — that is, the efficient allocation of capital that helps to tackle the existential threat of climate change.

The full report is at: