Erratic weather is forcing private equity investors to scrutinize a new source of financial risk ¡ª 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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