Investors, including superannuation holders, will need to revise their expectations downwards as a direct result of the impact of climate change, according to Frontier Advisors.
The firm said that there were a number of major secular themes which could potentially add to or detract from the long-term forecast for returns and it was the first time that Frontier had made a revision based specifically on the effects of climate change.
“As a result of analysis we have completed across a number of themes in this year’s review, we have lowered the likely returns we believe investors can expect, across all asset classes, by 0.25% per annum,” Philip Naylor, principal consultant at Frontier Advisors, said.
“The primary driver of this downward revision has been the long-term impact on the global economy of climate change.”
In its analysis the company focused on four themes of demographics, productivity and technology, inequality and climate change.
Following this, the firm’s downward revision was based on a best-case outcome that government’s around the world reduced carbon emissions and limit global warming
“There are costs of transitioning to a low carbon economy, but the long-term costs of global warming and extreme weather events are far greater. There are a number of possible future scenarios with the degree of impact dependent on a range of different policy path responses policymakers make in the future,” Naylor added.
Frontier said it completed modelling of a number of possible policy pathways and potential climate change impacts, including a more ambitious limiting of global warming to a two-degrees outcome, and pledges made under the “Paris Agreement” outcome.
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