This year started off with a series of wildfires in the US and closer to home in the Table Mountain National Park. In this article, we’ll look at how climate change has influenced the behaviour of wildfires globally, and how these wildfires impact not just people, but portfolios.  

The relationship between wildfires and climate change  

The Daily Maverick, reporting on the Table Mountain wildfires, stated that wildfires in this region are increasingly likely due to climate change. But the main issue being faced globally is not so much an increase in the number of wildfires but rather the change in severity; the Agricultural Research Council says that the Western Cape has in fact seen well below average fire activity this summer.  

Research scientist Dr Gavin Jones, working at the US Department of Agriculture’s Forest Service, spoke about Fire Ecology on an Ologies podcast back in 2021 following an earlier series of California wildfires. He emphasised the benefits of wildfires as a critical piece of ecosystems across the world as they create more resilient forests and can help the water supply by burning excess vegetation. Smaller, more frequent wildfires can also help to prevent much larger fires. He highlighted the importance of pyrodiversity – more varied types and frequencies of fires – for ensuring biodiversity. Here in South Africa, fynbos is well adapted to wildfires but if some areas do not experience frequent enough fire exposure, it is replaced with low-diversity forests (Daily Maverick). 

Portfolio risk  

The MSCI ESG Now Podcast recently published an episode to help investors understand wildfire risk. In addition to the effects that the California wildfires had on people’s lives and homes, there was also an effect on the businesses in the area that lost their facilities and also need to work to ensure the long-term health of their employees. One of the things that MSCI does is to assess companies for fire risk. A globally diversified portfolio is likely exposed to some degree of regional fire risk that is at the level of LA or higher. They state that wildfires, “can potentially increase costs from physical risks for companies, making them an important consideration for investors as they manage risk in their portfolios” (MSCI). Some recommendations they offer, if you have a portfolio overweight in fire risk, is to look at how investee companies are investing in adaptative technologies like fire-resistant tech.  

Moving forward 

On a positive note, we’re beginning to see more active fire management across the globe in a way that prioritises people, planet and profit. For some examples of this, you can read about the South African-based Expanded Public Works Programme, Working on Fire, and listen to the Ologies episode on Indigenous Fire Ecology. To discuss reporting solutions that help you better understand the environmental risks of your portfolio and how your investments might be contributing to – or combatting – climate change, reach out to us through our website.