Strategic asset allocation under climate change scenarios
Vivid Economics supported Mercer in this first-of-a-kind study on the implications of climate change for strategic asset allocation. Vivid’s role was to run workshops for a large number of institutional investors, design the analytical framework, construct scenarios and use existing climate integrated assessment models and mitigation models to show the extent of investment risk and opportunity across asset classes.
The study gave the client group knowledge of the latest thinking on the scientific and socio-economic assessment of climate impacts, and explored the extent to which quantitative estimates of short- and long-term effects are available for incorporation into financial models. It allowed the investors to gain a sense of scale of impact in relation to GDP across asset classes and hence the exposure of those classes to these impacts on a decade-by-decade basis. The results indicated to institutional investors the likely scale of effects over the next ten years, up to 2030, and for the longest-term infrastructure investments, out to 2050. It also set out signposts that would indicate directions of policy consistent with particular scenarios of risk and opportunity.
Date: February 2011