As the world moves away from fossil fuels and toward a carbon-neutral future, it's more important than ever for investors to consider the risks associated with a shift to a low-carbon economy, Bloomberg reports.
According to Morningstar, investors need to plan for the effects of climate change on their portfolios so they can better manage physical hazards, such as floods, sea-level rise, and hurricanes, as well as the increased costs associated with shifting technologies and policies.
"The first, she said, is 'the physical risks that are causing, and have the potential to cause, damage to assets and infrastructure, which can result in increased costs and reduced productivity,'" Morningstar's Azadeh Sabour says.
"These risks are creating an urgent need among investors to forecast the effects of climate change on their portfolios so they can manage exposure to physical hazards, such as floods, sea-level rise and hurricanes, and then mitigate the investment risk."
Other risks associated with a shift to a low-carbon economy include liability and legal risks, greenwashing, and mandatory climate reporting and disclosure standards.
Investors are also asking for "relevant climate data, research ratings, and indexes so that they can identify transition and physical risks, make more informed decisions when evaluating corporate net-
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