Accurate, comparable data about climate-related risks is critical to our ability to make more informed investment decisions on behalf of our clients. Because climate change will continue to affect society, economies, and markets, investors need this information to better price climate risks and fully assess the value of an issuer’s securities. Inadequate data and the absence of a standardized framework for disclosure currently limits our ability to evaluate the impacts of climate change (positive or negative) on our clients’ portfolios.
While companies continue to face new climate-related risks, the transition is not without opportunities. Government regulations, consumer preferences, litigation, and carbon pricing, for example, could affect an entity’s growth trajectory, margins, and value relative to peers. Addressing climate transition risks might help an entity realize strategic opportunities for growth or address vulnerabilities in its business model. Building resilience to physical climate perils such as flooding, drought, hurricanes, wildfires, extreme heat, water scarcity, or sea-level rise could help a company protect its facilities and workforce, maintain access to raw materials and energy sources, and ensure that its locations remain fit for purpose.
Insufficient information about these risks inhibits investors from correctly valuing an issuer’s securities, thus potentially paying too high or too low a price. Over the long term, understanding the comparative climate-risk-adjusted value of one entity over another may make a significant difference to financial returns. While meeting these disclosure expectations will require reporting entities to deepen their knowledge of climate impacts, we believe greater transparency will have significant long-term benefits for financial markets, including for the issuers of securities themselves, investors, and the millions of beneficiaries who rely on them.
To encourage the enhancement of climate disclosures, we share our views with policymakers and standard setters at the forefront of these efforts.