In 2018, we have mapped climate risks and opportunities in the portfolio by using scenario analysis. We have used both a 'business-as-usual' scenario and a '2-degrees' scenario. On a sector level, we have assessed the most significant climate factors, and how these may impact on growth and cost levels in the sector. We have done this for 26 economic sectors covering roughly half of the portfolio, using the time horizons 2022 - 2030 - 2040. In 2019, this analysis has been extended to cover sovereign debt. The majority of countries within the investable universe have been assessed using a similar setup and similar time horizons.
The image that arises from this analysis is that the effects of climate change are large and comprehensive in 2040. In the run-up to 2040, the transition is gradual for a global and diversified portfolio such as APG's portfolio. However, the transition can be accompanied by disruptive changes and unexpected inflection points that we will have to monitor closely.
Before 2030, we see major transitions already taking place in the 2-degree scenarios, with corresponding risks and opportunities, in particular for the following sectors: utilities, real estate, cement, oil & gas, aerospace, food and consumer goods, automotive, semi-conductors and electrical equipment, agriculture, chemicals and the construction sector.
Sectors that are especially vulnerable, but also show opportunities, for the physical impact of climate change are in particular: agriculture, forestry, real estate, oil & gas, food processing, road and rail transport, mining, utilities, health care, construction and water utilities.
From the analysis on climate risks in sovereign debt, we have concluded that exposure to countries with a high climate risk (physical and transition) is very limited and roughly equal to the exposure of the benchmark.
Apart from mapping the sector effects, we have also included climate factors in the macro-economic models that have been used in the strategic investment plan. Two scenarios in particular ('the climate trap' and 'good globalization') have included the possible effects of climate change for growth, inflation and other economic variables.
We will perform a second iteration of the scenario analysis in 2020.