[MCN] Climate risks aren’t just for the kids: Plenty of adults are already at risk

[Lance Olsen]

Climate risks aren’t just for the kids

Over the past few years, an increasing number of observers have stress that pension funds are exposed to climate risk from our daily combustion of fossil fuels. Even some politicians have been aware of this risk. Already, lawmakers have passed law requiring that California pension funds consider climate-related financial risk when making investments <<https://www.ipe.com/news/esg/biggest-us-pension-funds-must-consider-climate-related-risks-updated/10026446.fullarticle <https://www.ipe.com/news/esg/biggest-us-pension-funds-must-consider-climate-related-risks-updated/10026446.fullarticle>>>. 

Alas, most states lag far behind.

Worse, the risk to pension funds hasn’t been the only story of adult and elderly exposure to the effects of firing up the fossil fuels. For example, the insurance industry is in the early stages of cancelling policies it issued to homeowners in fire- and flood-prone areas. Homeowners might not see fire- or flood-risk coming, but the insurance companies do. 

So homes don’t even need to burn or get flooded for their policies to get cancelled. Cancellations are just in an early stage, but policies related to fire risk have already been cancelled in California. Closer to home, policies have already been cancelled in forested NE Washington state —even for property that hasn’t been burned down. 

Uninsurable homes will not sell well, if at all. They may actually end up worthless. So much for the idea that a home is an investment. If not already paid off, the owners will end up owing money on a home that has no real market value. Montana homeowners won’t be immune.

The banking and real estate industries may know all this better than homeowners do. For example, mortgages are already harder to get in regions at risk from the likes of fire. The real estate industry isn’t blind to these risks. On June 20, 2019 Commercial Property Executive magazine asked an executive of real estate development company if the industry has recognized the links from climate change to property values. He replied yes, especially in the past five years, and added that “Climate change is going to kill values for investors who are caught off guard, without a plan in place.”

Our local real estate agents may be as blind to the risk as any homeowner, but their any lack of knowledge isn’t matched with major players in the real estate game. 

Home risk aside, the adult world is at least some risk because the stock market faces risks of its own. Research from the University of California, Davis, finds episodes of extremely hot weather lead to declines in market value. 

“These findings of a negative market response imply that the equity market recognizes but underprices weather-related climate risk,” said Paul Griffin, an accounting professor at the UC Davis Graduate School of Management.

The study, to be published in the December issue of Weather and Climate Extremes <https://cts.businesswire.com/ct/CT?id=smartlink&url=https%3A%2F%2Fwww.sciencedirect.com%2Fscience%2Farticle%2Fpii%2FS2212094719300817&esheet=52122051&newsitemid=20191104005153&lan=en-US&anchor=Weather+and+Climate+Extremes&index=1&md5=0193ea22708811e480fa1ca89aad33b0> and available online now, is one of the first to examine and quantify the impact of physical climate risk on corporate market values.
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