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'Shifting point': Climate change could force $2.3t sharemarket shake-up
By Emily Chasan
World stock markets are likely to see an impact from climate change in the next five years, as policy changes to reduce global warming could force a net $US1.6 trillion ($2.3 trillion) repricing in sectors from energy to agriculture, according to a report.
The almost $US50 trillion global MSCI ACWI Index is poised to lose $US2.1 trillion of market value as a result of climate change, which would be offset by $US500 billion of value added to the stocks of green companies, according to the report led by researchers from the United Nations-backed Principles for Responsible Investing, Vivid Economics and Energy Transition Advisors.
Profits at coal companies and utilities that use thermal coal will be hardest hit, the report predicts.Credit: Jonathan Carroll
"A lot of underlying policy shifts may happen towards the middle of this coming decade, but the exposures are very real today," Jason Eis, executive director of Vivid Economics, said in an interview.
Markets are not currently pricing in major climate policy shifts, but equity prices will start moving amid growing expectations that governments will take more impactful measures, he says.
Share prices at 20 per cent of the world's most valuable companies are likely to swing at least 10 per cent in either direction, according to the report released on Monday. If the market delays repricing, the analysis forecasts the climate policy effect could wipe out another $US700 billion.
Profits at coal companies and utilities that use thermal coal will be hardest hit, oil prices will peak about 2027 and natural gas costs about 2040, while manufacturers of wind and solar equipment will see large jumps in valuations.
In motor vehicles, the most prepared companies are seen as having a large upside, while carbon-intensive miners and beef-focused companies will be negatively affected by carbon taxes, legal liabilities and consumer pressures.
Investments in natural solutions such as reforestation could generate about $US2.8 trillion in value, though those investments are barely available today. And investors may have climate blind spots around issues such as land use and biofuels, or where conglomerates could see climate impacts, according to the report.
"We're at a shifting point," Eis said. "Investors are going to have to understand if they are holding a dud."
Bloomberg