Risk management is such an easy concept and so central to financial evaluation that it seems unnecessary to even mention it. Yet relating to climate change and sustainability, there are efforts across the United States to hinder our ability as investors to perform easy risk management. Policymakers have proposed and even passed laws that make it harder, if not illegal, for investors to think about the financial risks of climate change.
These efforts are misguided. The freedom to take a position responsibly and the principle of risk management have to be defended, and this requires a return to basics.
Does climate change pose a financial risk? The answer is obvious. Drought, heat waves and extreme weather conditions place significant strain on infrastructure, supply chains, facilities and other people. Actually, the The United States recorded $165 billion in losses because of climate disasters just last 12 months. But the climate crisis also offers enormous opportunities. The Inflation Reduction Act has sparked a clean energy boom across the country. Investors shouldn’t need to wait it out.
Based on these facts Investors have increasingly They have incorporated climate considerations into their decisions precisely since the financial implications are so obvious. They act in response to sound, rational logic and governments mustn’t interfere on this process.
Still, some states have passed recent laws that prohibit investors from considering the consequences of climate change when evaluating bond issues, managing pension funds and other government contracts. In fact, they penalize risk management.
Ignoring a financial risk doesn’t suggest it goes away; it just makes it worse. Whether in individual balance sheets or in the whole economy: Failing to take potential threats under consideration and take care of them has significant disadvantages. Investors need data to evaluate these risks and the liberty to act on that data based on their business reasoning. Your fiduciary duty requires it.
When investors lack these basic requirements, markets are less efficient and effective, and everybody who invests in these markets suffers. When there are fewer financial institutions competing out there, states are forced to pay up Millions more in additional interest payments. And when states only work with institutions that don’t take climate and sustainability-related risks under consideration, they expose their pension funds, beneficiaries and taxpayers to the dark side of those risks.
Most investors They understand the threat and respond as they need to: by studying the information, following the trends, and keeping an in depth eye on risks and opportunities. But it will not be enough to be rational market actors.
For this reason, investors and executives from the private and public sectors have come together call on political decision-makers to guard the proper of each investor to include climate and sustainability risks into their decision-making. They make a transparent statement that the exercise of their fiduciary duty mustn’t be subject to government interference. Such interference will only make it harder for them to do their jobs and serve their customers.
That’s why all of us must get up, raise our voices and demand this Freedom to take a position responsible.
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