Are you covering Climate Change and Interest Rates?

North America just experienced its hottest June on record. The Copernicus Climate Change Service reports June 2021 averaged one-quarter of a degree Fahrenheit, higher than the previous record reported in 2012. The average temperature of June 2021 was two degrees higher than the average in the previous 30 years. The higher temperatures are to blame for an increase in wildfires and an increased severity of hurricanes.

Goizueta Business School Assistant Professor of Finance, Christoph Herpfer has looked at the financial markets and how climate change and natural disasters are impacting interest rates and loan pricing.

His new research shows that interest rates increase when climate change natural disasters occur even if the natural disaster does not impact the area that is hit. Herpfer and his research team found approximately $200 million per year of elevated interest rates in areas at risk of climate change-related destruction.

What does this mean for firms that operate in areas at risk for climate change-related disasters - such as hurricanes? “I would expect companies to shift their locations,” Herpfer shared, adding that he’s not talking about retail stores like Starbucks which need to stay close to their customers, but about manufacturers with a few concentrated facilities in areas susceptible to climate change-related natural disasters. “The next paper we want to write is how the physical footprint of companies is changing and whether they are leaving at-risk areas and relocating to safer areas more inland. That would be a huge deal.” Professor Herpfer is available for interviews. More details can be found here.