What is climate risk?

Climate change is often described as an environmental crisis. Increasingly, it’s also understood as a financial one — one that can have a real effect on your savings.

For most people, the biggest pot of money we’ll ever have is our workplace retirement plan. That means growing climate instability puts millions of people’s life savings directly in harm’s way.

Climate risk is the financial risk created by the real-world impacts of climate change. That includes stronger storms, rising temperatures, floods and wildfires. It also includes changing insurance markets, new regulations, supply-chain disruptions, and sudden shifts in the value of entire industries as the world moves away from fossil fuels and nature-degrading ways of doing business.

These climate-driven shocks rarely stay contained. One event can ripple through multiple parts of the economy at once — and into your retirement account.

To see how, it helps to look at a real-world example. How one hurricane can hit your retirement savings multiple different ways

Your retirement account is made up of tiny pieces of thousands of investments throughout the entire economy. That means when climate disasters hit the physical world, they hit your savings too.

Now, imagine what happens when a major hurricane strikes a coastal region and causes billions of dollars in damage:

1. Insurance companies take huge losses — then walk away. After paying enormous claims, insurers may decide that remaining in that region is too costly. When they pull out, many homeowners lose access to insurance entirely.
2. Property values collapse. Banks won't issue mortgages without insurance, so demand plummets and home prices fall sharply. Families suddenly owe more than their homes are worth.
3. Many more people stop paying their mortgages, and banks take the hit. With homes uninsurable, unsellable, or uninhabitable, defaults rise sharply. Banks holding those mortgages absorb the losses.
4. The economic shockwaves spread nationwide. The hurricane shuts down the local port, which is a crucial shipping hub. Companies across the country now can't get parts or deliver goods, so their earnings drop and their stock prices fall. 
5. Repairing destroyed infrastructure drives up fuel and food prices. Rebuilding demands materials and energy. That pressure can push up prices, and rising inflation eats away at the value of the bonds in your portfolio.

Now zoom out. Your retirement account probably includes insurance companies, real-estate trusts, banks, port operators, retailers, manufacturers, and bonds. One storm just hit your retirement savings multiple different times.

This is climate risk. And as climate change accelerates, these shocks are happening more often, with more severe consequences, every year.

Who's supposed to protect you from this?

The people managing your retirement money have a legal duty to protect you. In legal terms, they are fiduciaries. Their job is to manage risks and act prudently and solely in the interests of the workers whose money they manage. 

Ignoring the financial risks of climate change, or treating such risk as simply an ethical or “political” consideration, leaves workers’ savings exposed to foreseeable losses.

That failure is not only irresponsible — it is unlawful.

The lawsuit we filed against Cushman & Wakefield argues exactly this. It alleges that by offering its staff a retirement fund loaded with climate risk, it jeopardized its workers’ retirement savings, in breach of its duty as a fiduciary.

A successful case could set a powerful precedent, making it unmistakable that those safeguarding trillions of dollars in retirement savings must manage climate risk just as they would any other material financial threat, and give working Americans the protection they are owed.