Institutional Investors Unsure How Climate Risk Will Affect Infrastructure Assets

Investors are unsure how climate risk could hinder unlisted infrastructure assets, according to a research report from the EDHEC Infrastructure & Private Assets Research Institute, “Physical climate risk survey: those in the infrastructure investment industry are concerned and lack data.”

The report found that while an overwhelming majority of infrastructure investors see climate risk as something significant, many lack the tools and data to assess physical climate risk to their infrastructure investments.

A separate EDHEC report from August 2023 stated that by 2050, infrastructure investors could lose up to 54% of the value of their unlisted infrastructure investments due to physical climate risk, such as floods and storms and other climate-related events.

In the more recently released report, EDHEC surveyed 70 institutional investors who oversee more than $2 trillion in assets. Unlisted infrastructure are physical assets not publicly traded. The institute identified concerns as:

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97% of investors polled believe physical climate risk is something they consider to be significant;
About 76% believe its effect on their infrastructure investments will be medium or high (19% said it will have a low impact);
Only 16% think we actually know how it will impact these assets; and
76% also stated that the climate scenarios used by financial institutions to evaluate transition risk to infrastructure are inadequate for the assessment of physical climate risk.

The report also found that only 34% of those surveyed have evaluated physical climate risk themselves.

“The survey’s findings underscore the critical need for better understanding and management of physical climate risk in infrastructure investments,” said Frédéric Blanc-Brude, a co-author of the report and the director of EDHEC’s infrastructure research institute, in a statement. “Despite the high stakes, there is a clear gap between the perceived significance of climate risk and the ability to evaluate and mitigate its impact effectively.”