More powerful hurricanes and increasing numbers of earthquakes – climate change is real. What does climate change mean for the alignment of investment portfolios? Investments in cat bonds offer institutional investors interesting opportunities to help shape the future.

Climate change is jeopardizing the creditworthiness of government bonds

“Over the past three decades, there has not been a single year when the average temperature in Switzerland was less than the average,” says Prof. David N. Bresch, Professor for Weather and Climate Risks at the Swiss Federal Institute of Technology Zurich, at Credit Suisse’s EAM thought leadership event. He is drawing attention here to ongoing climate change and the fact that the greenhouse effect needs to be limited to a considerable extent if the goal of the Paris Agreement on climate change to restrict global warming to well below two degrees by 2050 is to be achieved.

Because every degree of temperature rise leads to a 7% increase in humidity. As a result, there is a greater probability of tropical cyclones and hurricanes. An increased probability of natural disasters can in turn impact the creditworthiness of government bonds if national budgets face the additional burden of major loss events. “Countries in exposed regions must practice good risk management in order to secure their creditworthiness in the long term,” says Prof. Bresch.

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