Climate risk measurement challenges infrastructure investors – EDHEC

An “overwhelming majority of investors” have revealed they lack the knowledge and tools to measure and manage the impact of climate risks on their infrastructure investments, according to research from EDHEC.

Respondents of the EDHEC Infrastructure & Private Assets Research Institute’s latest survey said they had “serious concerns and knowledge gaps”, emphasising “the urgent need for better data and information regarding physical climate risks in infrastructure investments”.

The report, titled Physical climate risk survey: those in the infrastructure investment industry are concerned and lack data, polled 70 investment industry professionals including managers with more than $2trn (€1.85trn) of assets under management.

Key findings from the survey provided the following insights:

• 97% of investors polled believe that physical climate risk is significant
• 76% anticipate a medium or high impact of climate risk on their infrastructure investments
• Only 16% believe that there is adequate understanding of how physical climate risk will affect infrastructure assets
• 76% of respondents find existing climate scenarios inadequate for assessing physical climate risk in infrastructure investments
• 66% of respondents had not conducted any evaluation of physical climate risk themselves.

EDHEC’s research also confirmed that despite the recognised importance of physical climate risk, investors and managers “lack sufficient tools and knowledge to assess its impact on their portfolios effectively”.

“The survey’s findings underscore the critical need for better understanding and management of physical climate risk in infrastructure investments. Despite the high stakes, there is a clear gap between the perceived significance of climate risk and the ability to evaluate and mitigate its impact effectively,” said Frédéric Blanc-Brude, Director of the EDHEC Infrastructure & Private Assets Research Institute.

He added that the survey underscores the importance of incorporating robust risk-assessment frameworks and climate scenarios into infrastructure investment strategies to address the evolving challenges posed by climate change.

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