Climate risk is important for long-term investors

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Press release – June 1, 2022

EDHECbelow Stuart Kirk answers: Climate risk is important for long-term investors

EDHECinfra reacts to Stuart Kirk’s remarks on climate change

In an open letter to Stuart Kirk, now suspended head of responsible investment at HSBC Asset Management, Noël Amenc, associate professor at EDHEC Business School and Frédéric Blanc-Brude, director of the EDHEC Infrastructure Institute, express their dismay at the to the lack of science behind Mr. Kirk’s recent very public assertion that “investors need not worry about climate change”. Telling the hard truth to a difficult audience is one thing, but spreading false truths to sound smart is pride and not brains.

Not only has Mr. Kirk relied on questionable statistical methods to argue that the stock market continues to rise as bad weather news becomes more frequent, but he also shows a remarkable lack of understanding of finance and the functioning of markets. Markets don’t process information they don’t have, and climate models and scenarios don’t yet tell us what we need to know to understand the impact of climate risk on asset prices. This is why investors are increasingly demanding access to non-financial data on climate risks.

Mr. Kirk estimated that climate risks will materialize in the long term and likely with a fairly limited average overall loss given the offset of climate gains and losses. So, for a bank like HSBC which has a short-term and well-diversified balance sheet, there is no real point in it dwelling on a subject which does not have a significant impact on this balance sheet. . This analysis unfortunately shows that Mr. Kirk did not understand the very essence of his mission. As Head of Responsible Investment at a leading asset management firm, Mr. Kirk is not responsible for his own risks or the risks of the bank, but for the risks of his clients. HSBC AM customers are longer-term investors than HSBC, as they have long-term liabilities such as pensions and life insurance. For them, strong liability coverage is at the heart of what asset management should be. This liability hedging objective is reflected in particular by investments in real assets that are not very diversified and therefore very highly exposed to climate risk.

Meanwhile, he bluntly proposes that the consequences of climate change can be summed up in an overall and limited loss of GDP, thus presenting a morally dubious equivalence between the huge cost that is likely to be borne by some people and nations, and the advantages of winners, who could in principle adapt to the irreversible and chaotic disruption of the planet’s climate system. Perhaps he does not care that Africa, Asia and Latin America are taking a beating and losing many of the development gains they have made over the past century. For Mr. Kirk, 2050 could be the new 1850.

Responsible investors, beyond the losses incurred in their portfolio due to climate risk, are also concerned about the impact of their investments on the climate and their ability to participate in an undisputed objective of limiting global warming which threatens our civilization. They care not only about Miami, but also about Mexico, Bangladesh or Venice under water.

Many journalists and even politicians have expressed concern over Mr Kirk’s suspension by HSBC AM, arguing that freedom of expression is important in public debate. We sincerely believe that they miss the point. Mr. Kirk entered the debate not as a journalist – who should be free to comment as long as he has solid sources – but as a high-level representative of a company which, through it, wishes to play its part in the service of investors concerned about investing responsibly. What could be more normal than to suspend him from a function that he does not really wish to exercise?

See a copy of the open letter to Stuart Kirk.

About the EDHEC Infrastructure Institute:EDHECinfra® is an EDHEC Business School company and a provider of indices and analysis for the infrastructure investment universe. Since the majority of infrastructure assets are not listed on the stock exchange, there has traditionally been a vast knowledge gap when it comes to assessing the prices of these assets and their evolution. We fill this gap with analyzes and calculated indices that already cover 25 countries representing an investable universe of 7,000 companies. We are based in Singapore and London. Visit edhec.infrastructure.institute.

EDHECinfra maintains the infraMetrics®: an online information system that provides access to the main stock market indices, including the infra300® and infra100® series. InfraMetrics also includes a wealth of valuation and analytics data, risk metrics, a fund strategy analysis tool providing robust performance quartiles for any segment, strategy or vintage, and peer group analyzes allowing investors to compare themselves against comparable segments of the market.

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Source: EDHEC Infrastructures

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