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Climate Change Adds New Risks for Retirement Savings

Individual retirement savings are facing a new form of risk as climate change wallops the corporate world’s physical assets and drives heavy economic losses.

“Roughly two-thirds of major global companies owned buildings, plants, or other assets ‘at high risk of physical climate change impacts’,’’ reports CBS MoneyWatch, citing recent analysis by S&P Global Trucost in London, UK. Some of the greatest risks include wildfire, water shortages, heat waves, and hurricanes.

Emily Kreps, global director of capital markets for CDP, a non-profit that watches over carbon disclosures by businesses, told the U.S. news agency that people are “really starting to make the link” between what they’re seeing on the news (or in their own back yards) and the safety of their retirement portfolios. In a report to the U.S. Congress, the Government Accountability Office (GAO) warned that disasters increase corporate and broader economic losses, making pension plans vulnerable to climate risk.

Some companies, like those in the fossil and utility sectors, are facing possible drops in annual investment returns of 9% and 3%, respectively, CBS notes. Renewable energy companies, meanwhile, may see a rise of 3%.

But despite the projected threat to retirees’ financial security, businesses do not have set standards for quantifying and disclosing material risks to the U.S. Securities and Exchange Commission. Currently, the commission is considering a rule mandating climate risk disclosure. 

And it’s not just corporate assets that are at risk from climate-driven disasters. CBS writes that homeowners face increasing potential for damage from flooding or fire—along with the attendant increase in insurance premiums. Research from the Urban Institute shows that individuals who have faced property damage from natural disasters are also more likely to see declines in credit scores, fall behind on bills, or experience cascading financial consequences that could include bankruptcy and homelessness.

Olivia Mitchell, director of the Boettner Center for Pensions and Retirement Security at the University of Pennsylvania’s Wharton School, told CBS she recommends that property owners analyze the environmental risks they might face—for example, drought, flooding, or hurricanes. Then, she said, they should take steps to mitigate those risks, whether that’s “shoring up property”, replacing a weak roof, or moving to a safer area. (Other recent news coverage has pointed out that not everyone facing climate risk has that choice.)

“This is a highly disruptive set of events to plan for,” she said.