Investing in an Era of Extreme Weather

by Marian Macindoe, Robert Klaber and Lori Keith, Parnassus Investments 

Weather events and the impacts from natural disasters pose risks to individuals, businesses and financial markets. Strong company management teams anticipate such events as potential business risks and have established robust plans to address them and mitigate their impacts. There will be both leaders and laggards in how companies withstand, respond to and adapt to a changing and more volatile climate. We are working with our portfolio companies to evaluate their plans for climate resilience, to share best practices in navigating climate risks and to collaborate with them to improve in these areas through our engagements as well as through proxy voting.

As the increase in extreme weather incidents is unlikely to abate, we, at Parnassus Investments, are building portfolios of leading companies that are more likely to be resilient in a changing climate through quality management, foresight and long-term strategic planning. We believe these leaders are not only working toward a low-carbon world but are best positioned to address extreme weather events in the meantime. 

Risk Assessment in an Era of Climate Change - When our firm evaluates potential investments for climate risks, we consider each company relative to its industry. Certain industries inherently have more risk than others. For example, companies with a lot of real estate and/or manufacturing facilities will have more risk than companies offering business services that don’t produce physical goods. The “footprint” in terms of where the offices and manufacturing plants are located is an important consideration as well as how that affects the entire supply chain.

In assessing a company’s climate resilience, we look at how well they can handle the risk of a climate event and can shift operations to other locations, considering both the impact to operations and their employees. Worker safety is paramount for the companies we consider for our portfolios. Evaluating impacts on the supply chain is also critical, as is understanding the potential effects on all contributors to the company’s operations.

Read the full article, including a look at Physical Risks and Transition Risks as companies move towards a low carbon economy - all here - https://greenmoney.com/investing-in-an-era-of-extreme-weather

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