Oxford Economics has identified a “hidden” risk in financial analysis related to climate change, which is often overlooked. This risk arises from the indirect impact of climate change on global supply chains, rather than the direct impact on individual companies. This “mesoeconomy” is the blind spot in climate risk analysis for the finance sector.
Oxford Economics has developed a new approach to measure these indirect climate risks, which assesses the vulnerability of supply chains to climate risks. They tested this approach by analyzing financial market data over a 10-year period and found that portfolios that incorporated this indirect climate risk performed better than those that did not.
The study shows that there is a correlation between indirect climate risk and lower total returns to equity, and that considering this risk can lead to improved portfolio performance. To access the full whitepaper, which includes the detailed methodology and findings, readers can complete a form. The report highlights the importance of considering indirect climate risk in financial analysis and provides a new approach to do so.