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How climate change could be a risk to your savings

How climate change could be a risk to your savings

LONDON — Climate change is increasingly influencing investment decisions, but it also poses certain risks to financial stability that are not being taken completely seriously, experts have told CNBC.

People are now much more aware of the issue, even those who have savings invested in carbon intensive companies, Yannis Dafermos, a lecturer at SOAS University of London, told CNBC. He added that as a result “they also realize they might face some financial losses, if they don’t do anything.”

As a result of the increased climate awareness, “there is now more pressure for instance on institutional investors and pension funds to adjust to the new reality,” Dafermos added.

Investments in ESG funds (which put either environmental, social or governance criteria at the heart of their decisions) have picked up in recent years, mainly in the wake of the coronavirus pandemic. Deloitte estimated last year that there could be 200 new ESG funds set up between 2020 and 2023, more than doubling the activity seen in the the previous three years.

But there are issues with ESG as whole, including a lack of transparency on what firms are actually doing in this field and the need for tougher regulation. And at the same time, ESG funds do not solve all the issues that climate change poses for markets.

One area where it’s clear that markets are not fully pricing in climate risks is government bonds.

Moritz Kraemer, chief economist at research firm Country Risk, told CNBC’s “Squawk Box Europe” last week that the G-7 nations together could see their credit ratings fall by more than three notches over the next 80 years, if they do not step up their climate efforts.

So, potentially those holding government bonds would lose cash the moment that prices did move to reflect climate risks.

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