GIC is a global long-term investor established in 1981 to manage Singapore’s foreign reserves. It is invested in more than 40 countries worldwide and its mandate is to preserve and enhance Singapore’s international purchasing power over the long term. Explore topics of long-term importance that shape their perspectives.
ClimateMAPS is a tool that was used for financial modeling of climate change. It has been jointly developed by Ortec Finance and Cambridge Econometrics.
Relevant snippets from their full report:
The impact of climate change on broad market beta is expected to be negative, although there might be a potential upside for certain markets, sectors, companies, and business models. Opportunities span emerging markets with currently low exposure to low-carbon utilities, or decarbonisation and adaptation technologies that are currently nascent but could scale with more policy support and capital flows. Risk assets such as equities and real estate are more sensitive to climate change compared to bonds and cash.
Based on a hypothetical global 60% equities and 40% bonds portfolio, returns may still be positive in the long run with climate change, but projected returns are meaningfully lower across all four scenarios versus a climate-uninformed baseline. Hence, long-term investors may be surprised by the underperformance of the portfolio relative to their expectations.
Climate change is projected to have a long-term negative impact on a global 60/40 portfolio in the order of minus 10-40% [...]
The annualised nominal returns over a 40-year period for the 60/40 portfolio ranges from 3.4 to 4.3% in the four scenarios, versus 4.6% in a climate-uninformed baseline.
[...] potential increase in market volatility from climate-related shocks.
[...] global warming leads to decreasing crop yields for most crop types, due to volatile precipitation and stronger summer heat waves. This increases the prices of agricultural products, food, and the general price level of the economy, placing an upward pressure on inflation.
Some of limitations to their top-down scenario approach:
Climate science models have not fully incorporated feedback loops and tipping points from warmer temperatures accelerating the melting of ice sheets, which would increase the sensitivity of average temperatures to greenhouse gas emissions.
Climate impact models do not account for the implications of climate change-related migration on economies and markets.
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