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AUM in Action

Singapore’s GIC Revamps Climate Scenario Analysis

US$690 billion Singaporean sovereign wealth fund GIC has updated its climate scenarios and analysis. The newly added fourth scenario, Too Little Too Late, is aligned with a 2-3°C by 2050 temperature pathway and assumes both high transition and physical risks due to delayed introduction of climate policies that ultimately fail to limit the physical impact of climate change. The other three climate scenarios implemented by GIC are Net Zero, Delayed Disorderly Transition, and Failed Transition. The main climate-related risks facing GIC were identified as: timing and sufficiency of climate policies, extent of physical risks (both acute and chronic), and whether markets price in future climate-related drivers “smoothly or disruptively”. Rachel Teo, Head of Sustainability and Total Portfolio Sustainable Investing at GIC, said: “By incorporating the scenario findings into both top-down and bottom-up investment processes, this exercise will enable us to focus our efforts on mitigating strategies to create a more resilient portfolio.” The updates and analysis were supported by Ortec Finance, a provider of tech and solutions for risk and return management for financial institutions, in partnership with economics consultancy firm Cambridge Econometrics. The use of climate scenarios is still in its early stages, raising questions about the credibility of transition plans and long-term risk management processes of the entities not applying scenarios, according to a new report by Sustainable Fitch. “Our research shows that mainstream climate scenarios are open to misinterpretation and underestimation of climate risks that could create interpretation risks for investors,” the report said.  

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