I've been reading the latest report from the International Chamber of Commerce on the economic impact of climate change over the past ten years. The analysis indicates that climate change events have cost the global economy $2 trillion. That is number 2 followed by twelve zeroes. Even more alarming is that these events have had disruptive effects on 1.6 billion people.
Some of the financial impacts are easy to understand. Damage to private dwellings, commercial property, and infrastructure can be quantified. Ditto to the financial damage to agriculture and food supplies. But how does one easily quantify the human impact? Is it simply the number of lives lost prematurely? Lost productivity? Climate-change related health issues that continue to tax the healthcare system? Vulnerable communities are usually the hardest hit and they in turn rely on government assistance. The assistance can be funded by diverting resources from other projects or by raising taxes to pay for this.
Enhanced climate action and mitigation efforts are needed. Without those, climate-change related events are likely to persist and grow. The financial repercussions are and will continue to be felt.
It was against that backdrop that I noted that twelve insurance companies have stopped issuing homeowners' insurance in Florida. Some have left the state. Others are not renewing existing policies. And some insurance companies have become insolvent. It seems that these insurance companies realize the cost of claims in Florida caused by climate-change events.
So what does this have to do with your 401k? It could be prudent to look at what exactly your 401k is investing in. What companies make up the portfolio? What is the climate-change risk (if any) associated with those companies? Might climate-change risk be impactful on how a company performs?
Hand in hand with climate change risk is deforestation risk. Are any of the holdings engaged in deforestation? Might that present litigation risk to those companies? In short, are any of your 401k plan's holdings possibly going to encounter revenue headwinds which could hinder financial results?
My feeling is it is not enough to save for retirement. It is important to know where your retirement savings are sleeping at night and trying to manage associated risk.