BlackRock Global Insights – Getting physical: assessing climate risks

by Adrienne Lawler
April 4, 2019

By BlackRock Investment Institute

A series of recent extreme weather events — from hurricanes and wildfires in the U.S. to heat waves in Europe and floods in Japan — have put a spotlight on climate-related risks. We offer a new set of tools for assessing such risks to portfolios.

Mapping the damage
Estimated climate-related impact on U.S. regional GDP, 2060-2080

Sources: BlackRock Investment Institute, with data from Rhodium Group, March 2019. Notes: The map shows the projected GDP impact in 2060-2080 on U.S. metropolitan areas under a “no climate action” scenario. Climate changes are measured relative to a 1980 baseline. The analysis includes the effect of changes in crime and mortality rates, labor productivity, heating and cooling demand, agricultural productivity for bulk commodity crops, and expected annual losses from coastal storms. It accounts for correlations across these variables and through time — and excludes a number of difficult to measure variables such as migration and inland flooding. See Rhodium Group’s March 2019 paper Clear, Present and Underpriced: The Physical Risks of Climate Change for further details on its methodology. Forward-looking estimates may not come to pass.

Advances in climate and data science now allow us to gauge the likely overall economic impact of climate-related risks on a localized basis. To illustrate, the heat map above shows that 58% of U.S. metro areas will likely suffer annualized GDP losses of 1% or more by 2060-2080 under a “no climate action” scenario. Among the likely losers: Arizona, the Gulf Coast region, and coastal Florida.

Our key findings can be viewed here.

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