“Asset owners should consider climate change at everystage of the investment process, from investment beliefs, policyand process to portfolio construction decisions,” said Deb Clarke,global head of investment research for Mercer, which is owned byMarsh & McLennan Cos. Inc. (Photo: Shutterstock)

(Bloomberg) –Investors be warned: If the planet heats up by morethan two degrees, it's going to get a lot harder to make money.

That's the conclusion of investment advisory firm Mercer LLC,which modeled the financial fallout from two, three and fourdegrees Celsius of global warming through 2100 in a reportreleased Monday.

The report marks one of the first attempts to modelsector-specific investment risks from climate change overdecades.

If warming is limited to no more than two degrees, coal andother fossil fuels lose the most in value, because countries haveshifted toward cleaner energy.

If temperatures rise further, sectors with the biggest losseswill include industrials and agriculture.

“Asset owners should consider climate change atevery stage of the investment process, from investment beliefs,policy and process to portfolio construction decisions,” said DebClarke, global head of investment research for Mercer, which isowned by Marsh & McLennan Cos. Inc.

The warning is the latest from the financial sector of the physical and financialrisks posed by rising temperatures. While some investmentstrategists think climate change will offer opportunities, otherswarn of physical and social damage cascading across theeconomy.

Limiting global warming to two degrees would cause significantlosses between now and 2030 in coal, oil and gas, and electricutilities, according the report. Those losses would be offset byhigher returns on renewable energy investments.

“On the two-degree scenario, our broad view is that the impactoverall on GDP is pretty negligible,” Steven Sowden, a principal atMercer and one of the report's authors, said in a phoneinterview.

If warming is allowed to exceed that level, however, investorswould have few good options.

Three degrees of warming would spare most of the energy sectorfrom significant losses, Mercer found, with the exception of coal.But the damage from extreme weather events would cause negativereturns for almost every other sector between now and 2030,including financials, agriculture, industrials and consumerstaples.

Those losses would accelerate by 2050. For most sectors, theeffects of four degrees of warming would be even worse.

Mercer said its model suggests climate change would depress theeconomy and weigh on interest rates. While most first-worldgovernment bonds could benefit from investors seeking safe havensagainst climate risks, Australia and New Zealand government bondscould be sensitive to physical damage caused by extreme weatherevents and resource scarcity.

Worldwide real estate would also suffer a net loss, Sowden said.While rising seas and more intense hurricanes would likely pushpeople inland, increasing the value of land that is now sparselyinhabited, those gains would be swamped by the loss in value — orsimply the outright loss — of wide swaths of coastal property. Theland that remains inhabitable would become increasingly expensiveto insure.

“These scenarios are negative for global growth, and they're notreally great for anyone,” Sowden said. Among the few areas of theeconomy he said were likely to have positive returns in abeyond-two-degrees scenario: Disaster-mitigation infrastructure,such as flood-wall defenses.

Mercer recommends governments take action to stick to theirParis 2015 climate goal commitments, and that investors increasetheir holdings of sustainable infrastructure and renewable energyassets to take advantage of the shift.

While scientists are cautious to link any single weather eventto global warming, they've built consensus around the probabilitythat more powerful floods, fires, droughts and storms will occurwith greater frequency as the Earth gets hotter.

The United Nations wants to hold average temperature increasesto well below 2 degrees Celsius, which would still represent thequickest shift in the climate since the last ice age ended some10,000 years ago.

Extreme weather events are the most threatening global risksthis year, the World Economic Forum said in a report publishedJanuary.

That same month, the U.S. Defense Department warned climatechange could compromise U.S. security, with rising seas increasingflood risk to military bases and drought-fueled wildfiresendangering those inland.

As those warnings multiply, some fund managers have been slow toincorporate the dangers of global warming into their investmentdecisions, Sowden said. But as climate change advances, assetprices could quickly shift to reflect the risk — something he saidis likely to happen within the next five years.

“If the market starts to price in these impacts, it could startto have material impacts, especially at the sector level, in arelatively short period of time,” Sowden said.

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