Erratic weather is forcing private equity investors to scrutinize a new source of financial risk — whether assets in their portfolios can withstand a changing climate.
For decades, investment models at the world’s largest funds relied on assumptions of a relatively stable climate based on historical data. But frequent record-breaking weather events triggered by global warming are creating new threats to earnings, asset valuations and exit outcomes for their portfolio companies.
“It’s more about identifying any of the risks that would cause an investment to fall over or present a big bill halfway through the investment period,” said Chetan Chhatwal, a Los Angeles-based partner at Baringa Partners, which advises more than 50 private equity funds on their investments and sold a climate scenario model to BlackRock for its Aladdin Climate platform. “Anything that prevents that from happening is not box ticking.”
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