‘Climate value at risk’ of global financial assets


Headline issue

Investors and financial regulators are increasingly aware of climate change risks. So far, most of the attention has fallen on whether controls on carbon emissions will strand the assets of fossil fuel companies. However, climate change itself could both destroy capital assets and reduce their productivity. This study uses a leading integrated assessment model to estimate the possible impacts of twenty first century climate change on the current market value of global financial assets.

Key findings

  • An expected US$2.5 trillion of the world’s financial assets, equivalent to 1.8 per cent of their total value, are at risk from the impacts of climate change if global mean surface temperature is expected to rise by 2.5°C (4.5°F) above its pre-industrial level by 2100.
  • However, uncertainties associated with climate sensitivity, the cost of damages, productivity growth and the cost of emissions abatement mean that the value of assets at risk could be higher. There is a 1 per cent chance that it could reach US$24 trillion, equivalent to 16.9 per cent of the value of global financial assets.
  • Aiming to limit warming to 2°C (3.6°F) in 2100 would reduce the value of global financial assets at risk to US$1.7 trillion. Nevertheless, uncertainties again mean that the value of assets at risk could be higher and there is a 1 per cent chance that US$13.2 trillion of assets could still be at risk.
  • When the costs of reducing greenhouse gas emissions to limit warming to 2°C are factored in, the average value of global financial assets would be US$315 billion higher, equivalent to 0.2 percentage points, compared with a 2.5°C emissions path.
  • Limiting warming to no more than 2 °C makes financial sense to risk-neutral investors and even more so to the risk averse.
  • A first estimate of these results was published last year in a report by the Economist Intelligence Unit.

In: Nature Climate Change. 2016. doi:10.1038/nclimate2972