Financial assets at risk from climate change

Between $2.5 trillion and $24.2 trillion of global financial assets could be at risk due to climate change, reports a new study published online in Nature Climate Change. The study finds that implementing policies to prevent temperatures rising by more than 2 °C above pre-industrial levels substantially reduces this risk.

Previous research has shown that enacting stringent climate policies, which limit emissions and pollution, may ‘strand’ some assets that contribute to climate change, such as oil, coal and gas reserves, because the climate policies dictate that the assets cannot be used, so the assets lose value. Climate change can directly destroy capital assets, for example through damage from extreme weather events, or it can reduce the productivity of these assets, thereby reducing their value. However, no studies have yet estimated the direct impact of climate change on the value of financial assets themselves.

Simon Dietz and colleagues modelled the impact of climate change on global economic growth and the value of global financial assets. They find that, if a business-as-usual emissions path is maintained, 1.8% of the present market value of financial assets is at risk, which is equivalent to about $2.5 trillion dollars or half of the estimated current total stock market value of fossil-fuel companies. However, the authors find that if climate change is worse than expected, up to $25 trillion of assets could be at risk.

In an accompanying News & Views article, Sabine Fuss writes: “clearly, such massive losses, even at a lower probability of occurring, would be hugely disruptive, so investors should be taking climate risks seriously.”

doi: 10.1038/nclimate2972

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