A figure of $US4.2 trillion ($5.73 trillion) was forecasted by 2100, a significant impact when you consider it was produced on the proviso global warming holds at +2 degrees Celsius.
In the run-up to the crucial climate change talks in Paris at the end of the year, the report –The Cost of Inaction: Recognising the Value at Risk from Climate Change – also hints at a doomsday scenario of a loss of $7 trillion should the earth warm by 5C.
“Investors currently face a stark choice. Either they will experience impairments to their holdings in fossil fuel companies should robust regulatory action on climate change take place, or they will face substantial losses across the entire portfolio of manageable assets should little mitigation be forthcoming,” EIU report editor Brian Gardner said.
“Charting a path away from these two options should be a strong motivation for long-term investors to engage with companies in their portfolios and to shift investments towards a profitable, low-carbon future.”
The impacts will come from a number of angles, including not just freak and catastrophic weather events but sluggish economic growth too.
To comprehend the magnitude of the figures stated, consider the fact the latter ($7 trillion) is greater than the total market capitalisation of the London Stock Exchange.
Even if global warming were to hold firm, the first figure ($4.2 trillion) is still equivalent to the annual gross domestic product of the world’s third-largest economy, Japan.
The report states five recommendations for action for business and investors:
- Governments must enact comprehensive carbon-pricing mechanisms that reflect their externality costs;
- Financial regulators need to ensure that best practice becomes standard practice;
- Stock exchanges should require disclosure of greenhouse gases by all listed companies;
- Institutional investors must integrate climate change into their risk management; and
- Pensioners should insist that the fund managers responsible for their retirement savings seriously address the full spectrum of long-term risks they are facing.
