Investors worldwide are underestimating the financial risks from climate change, and companies need to start disclosing their exposure, according to the International Monetary Fund. As global temperatures rise, severe climate events may impact companies owning assets in areas hit by drought, floods, wildfires and storms, the fund said Friday in the latest chapter released from its Global Financial Stability Report. At present, asset prices fail to reflect the risk of extreme weather events that may cost $1 trillion annually starting in 2050, the IMF said. “Equity valuations as of 2019 do not appear to reflect the predicted changes in physical risk under various climate change scenarios,” IMF researchers said in the report, which included an analysis of equity markets in 68 developed and developing countries over the past 50 years. The IMF also flagged transition risks, as governments and markets move toward a carbon-neutral economy.
The number of extreme weather events including droughts, wildfires, floods and storms have jumped fourfold since the 1980s, climbing to an average 200 per year for the past 20 years, according to the IMF report. The cost of these climate disasters has also spiked, rising above $120 billion annually from $22 billion in the 1980s, while holding steady at 0.2% of global gross domestic product for the past 30 years. Still, the impact of extreme weather events on stock prices has been generally modest, the IMF report acknowledged, as investors largely discount the potential risks.