Investors can take active role in climate change fight, says PGIM study

The climate trajectory for the next 15 years may already be decided, scientists warn – but the actions investors take today can still have tremendous impact, according to new research by PGIM.

While most investors recognise climate change as a major risk, PGIM says too few see the opportunities ahead that will help pave the way to a greener economy. 

The research, Weathering Climate Change: Opportunities and Risks in an Altered Investment Landscape, draws from the insights of more than 45 investment professionals across PGIM’s fixed income, equity, real estate, private debt, and alternatives businesses; interviews with 30 leading academics, economists, policymakers, scientists, and climate change investors; and a proprietary survey of 100 global institutional investors to better understand their current strategies around climate change. 

According to PGIM’s survey, nearly 90 per cent of global investors believe climate change is very or somewhat important but 40 per cent have yet to incorporate it into their investment process. 

“The humanitarian and economic catastrophe unleashed by Covid-19 revealed investor’s vulnerability to slow-burning risks with unpredictable timing,” says Taimur Hyat, PGIM’s chief operating officer. “Climate change is the next crisis that will radically reshape investors’ risks and opportunities. Investors that take action now can play an influential role in driving the global transition to a low-carbon economy while optimising their portfolios for a greener future.” 

The research demonstrates that markets have only just begun to reflect climate risks in asset prices and predicts that a range of catalysts will accelerate the gradual, or potentially abrupt, repricing of assets to more fully reflect climate risks. This mispricing of climate risks creates opportunities for active, long-term investors. These range from identifying tech-forward companies adept at transitioning to the new “low-carbon economy,” to incorporating physical and transition climate risk in analysing real assets, to supporting startups engaged with transformative technologies like carbon capture and storage. 

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