Tougher action on climate change makes sense for investors

BEUC NEWS - 22.04.2016

Global warming puts trillions of financial assets at risk, a new study led by researchers of the London School of Economics shows[1]. The negative consequences of climate change such as droughts and floods will slow down economic development and thereby negatively impact financial stability and revenues from stocks and bonds.


According to the researchers, climate change has a twofold risk to lead to stranded assets i.e. assets suffering from premature write-downs. First, extreme weather events can directly destroy crucial assets such as infrastructure as well as land-use or lower their production value. Second, it can lower the output of these assets and thereby lead to lower returns on investment.

Limiting the temperature rise to 2°C by 2100 could damage financial assets at global level at around €1.5 trillion. The most extreme scenario – a temperature rise of more than 2°C – could put financial assets of up to €21 trillion at risk[2].

The study basically says that efforts to limit climate change make economic sense from an investor point of view[3].   

The added value of the research is that it does not focus – as many previous studies – solely on the negative impact of climate change on for instance oil producing companies and possible lower revenues for their investors. The study rather seeks to provide an integrated assessment model which can be used to estimate the impact of climate change on financial assets in general and to raise awareness with companies, regulators and investors about the economic risk at stake. 

From a consumer i.e. retail investor perspective this means companies should become more transparent in disclosing the risks that could derive from climate change to their assets. They should also steer consumers to investments which are, in the long run, better for both the environment and their wallets.

[1] Simon Dietz, Alex Bowen, Charlie Dixon and Philip Gradwell: ‘Climate value at risk’ of global financial assets, in: nature climate change, 4 April 2016, DOI: 10.1038/NCLIMATE2972.

[2] Original values have been expressed in US-dollar. We have estimated Euros based on an exchange rate 0.8821 on 20 April 2016.