GIC Says Portfolio Risks Growing as Climate Action Falls Short

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(Bloomberg) — Singapore’s sovereign wealth fund GIC Pte. is preparing its investment portfolio for more natural disasters and weather stresses, as the pace of emissions reduction is too slow to limit the effects of global warming.

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It’s now “widely accepted” that the world will miss the Paris Agreement objectives of limiting the rise in global temperatures to 1.5C, or well below 2C, from pre-industrial levels, the fund said in its latest annual report.

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“Given recent adjustments and reversals on policies related to decarbonization, the global transition towards a net-zero economy will not happen fast enough to avoid significant physical changes in the climate and environment,” GIC said in the report. “This creates real, near-term physical risks for the companies and assets we invest in. We seek to understand and underwrite these appropriately.”

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Many businesses and investors globally have eased or removed emissions-reduction targets in the past year. US President Donald Trump’s anti-environment policies, artificial intelligence-triggered electricity demands and the Iran war have also reignited demand for fossil fuels. JBS NV, the world’s largest meatpacker, this month stepped back from a 2040 net zero goal.

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As the world gets hotter, losses from natural disasters are growing, crossing more than $100 billion annually in recent years, according to Swiss Re AG. That’s forcing large investors such as GIC to try to quantify the impact on their portfolios, and engage with companies on setting aside more cash for resilient infrastructure and insurance.

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GIC says it conducts climate scenario analysis, is creating internal metrics and using third‑party data to track acute risks such as wildfires and hurricanes, along with increases in temperatures and sea levels. It also analyzes earnings at risk from carbon taxes and other regulations.

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The fund said it sees potential in products and services that can help businesses and communities mitigate climate damage. Its research estimated that investment opportunities across public and private markets could increase to $9 trillion by 2050 from $2 trillion last year, according to the report. The fund is also investing in solar and wind energy as well as “providers of green solutions” in industrial and manufacturing sectors. 

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While AI has increased power demand, it also has potential to assist in emissions reduction, and already is enabling better energy management, improving grid operations and providing predictive maintenance for renewable assets, GIC said. 

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“AI is also accelerating breakthroughs in materials science, carbon capture technologies, and climate modeling that could lower the cost and complexity of decarbonization,” the report said.

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—With assistance from David Ramli.

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