Climate change is undoubtedly one of the defining risks of our time and foreseeable future. The challenge of modelling is clearly very topical, as expected climate risks and impacts already feature in investment decisions, and their influence is expected to grow as data, analysis and understanding develops. We have no silver bullets, but believe the modelling approach we describe is well suited to the complexity and uncertainty involved. In the report, we organize our approach as follows:
- Climate implications for asset returns
- Causal modelling: An overview
- Our model
Causal modelling: A possible application considering climate risk and asset returns
We illustrate a modeling approach that serves as a useful tool to explore the potential impacts of climate risk on future asset returns.