Climate Change Could Reduce Global Financial Assets by $2.5 Trillion

“Our work suggests to long-term investors that we would be better off in a low-carbon world,” said Prof Simon Dietz of the London School of Economics, the lead author of a new study published in the peer-reviewed journal Nature Climate Change. The study used economic modeling to estimate the impact of unchecked climate change. The losses would be caused by the direct destruction of assets by increasingly extreme weather events and also by a reduction in earnings for those affected by high temperatures, drought and other climate change impacts.

In the worst case scenarios, often used by regulators to check the financial health of companies and economies, the losses could soar to $24 trillion, or 17% of the world’s assets, and wreck the global economy. More conservative estimates put the loss at $2.5 trillion. However, research shows that if we meet the 2°C goal set by the Paris climate talks, we can knock $315 billion of that loss.

Even if action is taken to tackle climate change, there will be winners and losers, according to Dietz. Fossil fuel companies will lose value—their current stock market capitalization is about $5 trillion. Major investors such as Norway’s sovereign wealth fund have already begun selling off high-carbon stocks such as coal companies. A second study out of the University of Oxford warns against investing in new coal and gas fired power stations after 2017. In order to meet the 2°C target, no new carbon-emitting power stations can be built anywhere in the world unless they are later closed down or retrofitted with carbon capture and storage technology. “Investors putting money into new carbon-emitting infrastructure need to ask hard questions about how long those assets will operate for, and assess the risk of future shut-downs and write-offs,” said Prof Cameron Hepburn of the University of Oxford.

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