The Great Repricing: Investing in the Age of Climate Change

The planet is in “code red”. Climate change can no longer be dismissed as tomorrow’s problem.

With increased global warming, the frequency and intensity of extreme weather events will accelerate as will the chronic impacts from a hotter Earth. As a result, there are major implications for the environment, for human health and well-being, for our lifestyles, and for business activities.

But these risks are also today’s opportunity.

As climate change increasingly affects the valuations of companies and individual assets, both upwards and downwards, via what we’re calling “the great repricing”, there is a need to reassess the risks for all market participants. It is also an enormous opportunity to shift the future of investing away from value extraction to value creation that accounts for the needs of people and the planet.

To that end, we produced The Great Repricing (PDF) in collaboration with a distinguished field of experts including our co-authors at Entelligent. From science to financial services this compendium of voices offers investors timely information to both understand what is at risk with increased global warming trends and how to incorporate climate-based solutions into investment strategies. It also includes contributions by our friends at One Earth and their game changing philanthropic potential of Project Marketplace which brings together a global network of on-the-ground impact solutions.

The report is organized into four chapters:

Climate Science

In the first section, top climate scientists Dr. David Schimel and Dr. Kimberley Miner explain how the warnings of the most recent IPCC report are hardly new. For several decades, climate science has provided evidence that human activities were driving climate change. However, as scientific models grow in accuracy and detail, we are now better able to understand climate change history as well as look ahead to multiple potential scenarios based on different levels of warming, and the second and third-order effects that climate change and adaptation may bring.

Regulatory Environment

In the second section, Entelligent’s Dr. Pooja Khosla and Nana Yaa Asante- Darko lay out the business case for climate disclosures and provide an overview of the contributions of the Taskforce on Climate-related Financial Disclosure (TCFD) in bringing standardization to the regulatory environment around climate reporting.

Asset Classes

The third section features a range of asset managers sharing perspectives on how they look at climate change across diverse asset classes within their overall investment philosophies. Perspectives include:

• Michelle Dunstan of AllianceBernstein explains why deep research is needed to truly understand the implications of climate change on commodities and commodity issuers
• Garvin Jabusch and Betsy Moszeter of Green Alpha Advisors share their Next Economy™ investment philosophy, “a Moore’s Law-like approach to sustainability”
• Lisa Davis and Christina Hillof PGIM reflect on incorporating climate risk into their real estate investment processes across residential and commercial properties
• Via a very personal story, Ivka Kalus of Promethos Capital, urges investors to heed the calling to save our “Big Blue Marble”, focusing on both social as well as environmental issues
• Robert Smith of Sage Advisory Services sets out how fixed-income investors can develop a framework for understanding transition risks and physical risks across a bond portfolio
• Patrick Drum of Saturna Capital asserts that sovereign debt is a critical part of climate response
• Matthew J. Diserio of Water Asset Management shifts the conversation to water and why pricing it is critical to solving water scarcity and broader climate challenges
• Mamadou-Abou Sarr of V-Square Quantitative Management talks to the policy instruments and market mechanisms needed to arrive at globally effective carbon pricing

Data & Tools

The final section explores advancements in data science and technology that will empower financial experts in the coming years.

• Dr. Pooja Khosla of Entelligent shares measurement tools which can assist asset managers and advisors in understanding climate transition risks within portfolios
• Larry Lawrence of MSCI provides an overview of climate index solutions that can demonstrate an investment portfolio’s alignment with a particular temperate target
• Chris Hartshorn of risQ illustrates how high climate risk municipal bonds and mortgage-backed securities are likely to fare overall and with respect to individual perils

Throughout the report we also encourage you to explore topics of interest through video content from The Great Repricing: Financial Advice in the Age of Climate Change. This four-day event, initially screened September 21-24, 2021, is now available through September 2022, free on-demand.

As co-founder of Gitterman Asset Management, I believe that the levers of the capital markets are some of the most powerful we can pull to solve climate change. Our firm is dedicated to building climate solutions that not only stand up to the rigor of our diligence but also empower investors to toggle their economic levers toward a more sustainable future.