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Private equity steps up climate risk checks as catastrophe costs rise
A Bloomberg Green analysis found climate risk mentions nearly doubled year over year among sustainability reports from major alternative asset managers.
Erratic weather and intensifying climate hazards are pushing private equity investors to focus more closely on whether portfolio assets can withstand a changing climate, according to Insurance Journal. The outlet reports that models long relied on historical assumptions of stable conditions, but record-breaking events are introducing new threats to earnings, asset valuations, and exit outcomes.
Insurance Journal cites comments from Chetan Chhatwal, a partner at Baringa Partners LLP, which advises more than 50 private equity funds, saying the goal is to identify risks that could derail an investment or create major unexpected costs during the investment period. The outlet also notes that Baringa sold a climate scenario model to BlackRock Inc. for its Aladdin Climate platform.
A Bloomberg Green analysis of sustainability reports from 12 of the largest alternative asset managers showed overall mentions of physical climate risks and related terms nearly doubled from a year earlier, Insurance Journal says. The article adds that floods and cyclones are often treated as the most immediate risks, while heat is being screened as a long-term, chronic vulnerability, particularly across private equity assets totaling more than $700 billion.
Insurance Journal links the shift to rising natural catastrophe costs from hurricanes and wildfires, citing factors including climate change, urbanization, and inflation that increase the price of disasters when they occur. It also points to a stress test by Allianz SE projecting Europe could face combined economic losses of $638 billion over the next five years across France, Italy, Germany, and Spain.