Climate change threatens USD 2.5 trillion in assets

A new study estimates that a global temperature rise of 2.5 degrees Celsius by 2100 could put at risk USD 2.5 trillion in assets. This represents 1.8 per cent of the world’s financial assets.

Economists have some sobering news for investors who focus on profit to the exclusion of the climate. In a new paper, they show that USD 2.5 trillion could be at risk from the impacts of climate change if global warming reaches 2.5 C above its pre-industrial level by 2100.

This is half of the estimated current total stock market capitalisation of the world’s fossil fuel companies.

Even if warming is limited to the 2C agreed at the Paris climate talks last December, USD 1.7 trillion in assets may still be at risk.

“Our results may surprise investors, but they will not surprise many economists working on climate change,” says the study’s lead author Simone Dietz from the London School of Economics.

Over the past few years, economic models have been generating increasingly pessimistic estimates of the impact of global warming on future economic growth, he explains.

As Associated Press reports, climate change can destroy assets directly through sea-level rise, or by disrupting economic activities through weather events such as droughts or intense tropical storms.

Even when the study’s authors factored in the costs of cutting greenhouse gas emissions to limit global warming to no more than 2C, global financial assets would still be on average USD 315 billion higher than if the world continued on the ‘business as usual’ course for global emissions.

“This means risk-neutral investors would choose to cut emissions, and risk-averse investors would be even more keen to do so,” says Dietz.

According to the study’s authors, the research shows why addressing climate change should be a priority for long-term investors, such as pension funds.


Image credit: Baron Visuals, flickr/Creative Commons

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