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Climate change policies ‘could see companies lose $2.3tr’

Increasingly stringent climate regulations could wipe $2.3tr from the value of companies in sectors such as fossil fuels, agriculture and automotive manufacturing by 2025, a report has found.

The UN-backed Principles for Responsible Investment (PRI) network, which manages $86 trillion of assets, says that the fossil-fuel sector is in the most danger, with global demand for oil expected to peak in 2027.

Coal firms are expected to fare the worst and could lose as much as 44 per cent in value, while oil and gas firms risk losing up to 31 per cent of their current market share.

Regulators already appear to be taking heed, with the European Investment Bank announcing last month that it will end financing for fossil fuel projects from 2021 and that future financing will be put towards renewables and “clean energy innovation”.

While automakers also face a tough transition in the years ahead, those that are heavily investing in electric vehicles could more than double their values, the report says.

“As the realities of climate change catch up, social pressure mounts, and low-carbon solutions get cheaper, it’s highly improbable that governments will be allowed to let the world sleep-walk into greater rises in temperature without being compelled into forceful action sooner,” PRI CEO Fiona Reynolds said.

“This poses huge threats for assets and for the wider system.”

The PRI analysis shows that broad index-based funds such as the iShares MSCI ACWI ETF could lose up to 4.5 per cent or $2.3tr in value under the most extreme scenario.

While companies in the West are already reducing their coal use and increasing the amount of energy generated through renewables, this is currently being offset by rising demand in place like China.

Last month, calculations by the non-profit organisation Global Energy Monitor found a negative growth rate for coal plants globally but saw China grow its domestic sector.

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