Leveraging Advanced Data and Analytics New Report Examines the Physical Risks Associated with Climate Change on Municipal Bonds, Commercial Real Estate and U.S. Utilities
Integrating Sustainability Factors into Investment Research Process is Critical to Risk Management
New York, April 4, 2019 – Investors are underpricing the impact of climate-related risks, including more frequent and intense extreme weather events, and need to rethink their assessment of asset vulnerabilities, according to a new report by the BlackRock Investment Institute.
While the physical manifestations of climate change are clear, including rising sea levels, and more intense hurricanes, wildfires and droughts, how investors incorporate these risks into their analysis is not. The report, “Getting physical: Scenario analysis for assessing climate risks ” [www.blackrock.com
/physicalclimaterisk] uses new tools and data to articulate the potential impact on different U.S. asset classes, marking an important next step as investors increasingly recognize the importance of integrating climate-related risk factors in the investment process.
“The combination of advances in data sciences, including geolocation data and climate modeling, have allowed us to more precisely assess the investment implications of climate-related risks” said Brian Deese, Global Head of Sustainable Investing, BlackRock. “Asset-level analysis is key for investors. We find that the risk posed by more frequent and severe weather events such as hurricanes and wildfires are not fully reflected in the price of many assets, including U.S. utility equities. A rising share of municipal bond issuance is set to come from regions facing climate-related economic losses. And many high-risk commercial properties are outside official flood zones.”
Many investors recognize that climate-related risks are growing. However, until recently, most investors did not have access to data showing the potential impact at the asset level of both direct physical risks and indirect economic impacts as well. Working with Rhodium Group, BlackRock leveraged 160 terabytes of data to assess these climate-related risks facing specific asset classes, both today, and under a range of future climate scenarios reaching out to 2100. Specific findings of BlackRock’s research include:
Municipal Bonds
- Within a decade, more than 15% of the current S&P National Municipal Bond Index (by market value) would comprise metropolitan statistical areas (MSAs) suffering likely average annualized climate-related economic losses of up to 0.5% to 1% of GDP.
- Looking out to 2080, an estimated 58% of U.S. metro areas will likely see GDP losses of up to 1% or more, with less than 1% set to enjoy gains of similar magnitude.
- The New York City region faces annual losses equivalent to roughly 1% of GDP by late century.
- Florida will be affected the most, with Naples, Panama City and Key West seeing likely annual GDP losses of up to 15% or more, mostly driven by coastal storms.
- Miami’s current annual GDP losses are already more than 1% and projected to grow to an annualized 4.5% of GDP by the end of the century.
Commercial Real Estate and CMBS
- The median risk of a building that backs a CMBS bond being hit by a Category 4 or 5 hurricane today has risen by 137% since 1980.
- BlackRock is projecting a 275% increase in the risk of category 5 hurricanes between now and 2050.
- More than 80% of properties tied to CMBS loans affected by recent hurricanes in Houston and Miami are outside official flood zones.
- New York City is facing rising sea levels of up to three feet by the end of century exposing more than $70 billion of property to potential losses.
Utilities
- Investors in utility stocks are quick to sell out of these names following an extreme weather event, with stocks down 1.5% on average over the ensuing 40 days.
- However, these stocks recover quickly while the true economic losses are still being calculated, suggesting that investors are focused on headline risk rather than assessing utilities’ vulnerability to climate-related weather events.
- BlackRock has generated a climate-risk exposure score for every U.S. utility based on a plant-by-plant assessment of physical risk, and finds that the most climate-resilient utilities tend to trade at a slight premium to their peers. This gap may become more pronounced over time as weather events turn more extreme and frequent.
A firm-wide commitment
BlackRock has long believed that sustainability-related issues – including climate-related risks – have real long-term financial impacts, with increasing relevance in the investment process.
“Many of our clients are long-term investors and, as a fiduciary, we’re working to help them integrate ESG factors across an entire portfolio to enhance long-term risk adjusted returns with built in resilience,” said Deese.
In addition to incorporating sustainability considerations across our investment platform, BlackRock currently manages a broad suite of dedicated sustainable investment solutions, ranging from broad ESG strategies to thematic and impact strategies that allow clients to align their capital with the low-carbon transition and the UN Sustainable Development Goals. BlackRock also manages one of the largest renewable power funds globally. With deep expertise in alpha-seeking and index strategies, across public equity and debt, private infrastructure, commodities and real estate, BlackRock continues to build scalable products and customized solutions across asset classes that support no-carbon, low-carbon, and energy transition solutions.
Disclaimer
For selected journalists only.
This communication is for information purposes only and does not constitute a financial promotion, marketing communication or an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer. Accordingly, this material does not constitute an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not lawful or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. It is your responsibility to be aware of the applicable laws and regulations of your country of residence. This information is confidential and was prepared solely for the named recipient. It may not be used or published without the prior consent of BlackRock.
Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: 020 7743 3000. Registered in England No. 2020394. For more information, including details of our privacy policy, please see the website at https://www.blackrock.com/uk/individual/compliance/privacy-policy BlackRock is a trading name of BlackRock Investment Management (UK) Limited.
When this document is issued in the EEA, it is issued by BlackRock (Netherlands) BV: Amstelplein 1, 1096 HA, Amsterdam, Tel: 020 – 549 5200, Trade Register No. 17068311. For more information, please see the website: www.blackrock.nl. For your protection telephone calls are usually recorded. For more information, including details of our privacy policy, please see the website at
https://www.blackrock.com/international/individual/en-zz/compliance/privacy-policy. In Australia, issued by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975 AFSL 230 523 (BIMAL). This material is not a securities recommendation or an offer or solicitation with respect to the purchase or sale of any securities in any jurisdiction. It provides general information only and does not take into account your individual objectives, financial situation, needs or circumstances. Before making any investment decision, you should therefore assess whether the material is appropriate for you and obtain financial advice tailored to you having regard to your individual objectives, financial situation, needs and circumstances. This material is not a securities recommendation or an offer or solicitation with respect to the purchase or sale of any securities in any jurisdiction. This material has not been prepared specifically for Australian investors. It may contain references to dollar amounts which are not Australian and may contain financial information which is not prepared in accordance with Australian law or practices. This material is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. BIMAL is a part of the global BlackRock Group which comprises of financial product issuers and investment managers around the world. BIMAL is the issuer of financial products and acts as an investment manager in Australia.
In Hong Kong, this press release is issued by BlackRock Asset Management North Asia Limited. This press release and the BlackRock website mentioned herein have not been reviewed by the Securities and Futures Commission of Hong Kong.
In Singapore, this information is issued by BlackRock (Singapore) Limited (company registration number: 200010143N)
In Korea, this information is issued by BlackRock Investment (Korea) Limited. This material is for distribution to the Qualified Professional Investors (as defined in the Financial Investment Services and Capital Market Act and its sub-regulations) and for information or educational purposes only, and does not constitute investment advice or an offer or solicitation to purchase or sells in any securities or any investment strategies.
In Latin America and Iberia: this material is for educational purposes only and does not constitute investment advice nor an offer or solicitation to sell or a solicitation of an offer to buy any shares of any Fund (nor shall any such shares be offered or sold to any person) in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction. If any funds are mentioned or inferred to in this material, it is possible that some or all of the funds have not been registered with the securities regulator of Argentina, Brazil, Chile, Colombia, Mexico, Panama, Peru, Portugal, Spain, Uruguay or any other securities regulator in any Latin American country and thus might not be publicly offered within any such country. The securities regulators of such countries have not confirmed the accuracy of any information contained herein.
BlackRock México, S.A. de C.V., Asesor en Inversiones Independiente (“BlackRock México”) is a Mexican subsidiary of BlackRock, Inc., registered with the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, “CNBV”) as an independent investment advisor (asesor en inversiones independiente) under the registration number 30088-001-(14085)-20/04/2017, thus authorized to render Investment Advisory Services. The registration of BlackRock Mexico in the Investment Advisors Registry (Registro de Asesores en Inversiones) does not imply certification on the compliance by the investment advisors with the applicable laws and regulations or the accuracy or correctness of the information contained herein. Please note that the CNBV exclusively oversees the provision of securities portfolio management services when making investment decisions in the name and on behalf of third parties, as well as services consisting in providing individualized investment advice on Securities, and the analysis and issuance of individualized investment recommendations, thus it is not entitled to supervise or regulate any other services provided by investment advisers.
Investment involves risks. Past performance is not a guide to future performance and should not be the sole factor of consideration when selecting a product. All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. Capital at risk. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested. Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.
The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock or any part thereof and no assurances are made as to their accuracy.
© 2019 BlackRock, Inc. All Rights reserved. All other trademarks are those of their respective owners.
BLACKROCK, BLACKROCK SOLUTIONS, iSHARES, BUILD ON BLACKROCK, SO WHAT DO I DO WITH MY MONEY and the stylized i logo are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.