Equity investors face 'daunting' challenge in pricing climate risk

Sudden shifts in investor perception could threaten markets, IMF warns

Equity investors must face the "daunting" task of pricing the physical risk associated with climate change in order to shield portfolios from a looming shock to global financial stability and asset prices.

The International Monetary Fund (IMF) warned in a report published earlier this month that the physical risk to assets posed by climate change is not currently reflected in equity prices, meaning any "sudden shift in investors' perception" of this future risk "could lead to a drop in asset values, generating a ripple effect on investor portfolios and financial institutions' balance sheets". It said that in addition to measures to mitigate and adapt to climate change, and actions to enhance insurance penetration and strengthen sovereign financial health, better measurement and disclosure ...