Rising Climate Change Risk Not Yet Factored in by Markets
Limited impact on near-term cash flows is masking longer‑term risk.
Climate change has seen a dramatic increase in attention in recent years, and this has been reflected in its prominence as an investment issue.
Despite this focus, however, only those sectors facing high transition risk, like fossil fuel producers, have seen valuations materially impacted.
In our view, rising climate change risk is not being reflected in broader valuations due to the limited impact of climate factors on near-term cash flows.
Last year we saw a dramatic increase in concern over climate change, which was reflected in its prominence as an investment issue. Despite all this attention, however, climate change has only had a significant impact on the valuations of select sectors— specifically those facing extremely elevated transition risk, such as fossil fuel producers. We believe valuation dislocations have been limited to a narrow universe of companies because climate change has not been particularly impactful to near‑term cash flows for the broader market.
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