Companies risk losing up to £1.75 trillion in valuation within five years as policymakers take steps to deal with the climate transition.
Hardest hit will be the carbon-intensive businesses, according to the Principles for Responsible Investment (PRI) group.
The PRI is supported by nearly 2,600 asset owners and investors with a combined £64.4 trillion of assets under management.
The study forecasts that the value of the largest listed coal companies could fall by 44% while the 10 biggest firms in oil and gas could lose 31% of current value by 2025 but the group emphasises that there are great opportunities as well as threats for both investors and companies.
Share price rises
Firms that adapt to changing policies would see combined share prices increase by hundreds of billions of dollars, according to the UN-backed group.
Leading progressive companies would see an average uplift of 33% in value while those moving fastest, for example carmakers going over to electric vehicles (EVs), are projected to increase in value by 108%.
The study, carried out by Vivid Economics for the PRI, says that manufacturers slow to move to EVs will see their value fall, as governments move to rapidly phase out Internal combustion (ICE) models.
A spokesperson for the Society of Motor Manufacturers and Traders said:
“Vehicle manufacturers and suppliers are investing vast sums in ultra-low and zero emission vehicles to help meet the same environmental goals. [Now] we need the right conditions to encourage investment, innovation and a competitive market.
“This must include giga-scale battery production and electrified supply chains, massive skills and infrastructure investment and long-term incentives to help companies and consumers make the shift sustainably.”
Investors globally are ramping up pressures on firms to be more transparent about the risks from extreme and changing weather.
This pressure is reinforced by Mark Carney, the governor of the Bank of England, who recently issued a dire warning to companies and industries that fail to achieve zero-carbon emissions.
“There will be industries, sectors and firms that do very well during this process because they will be part of the solution. But there will also be ones that lag behind and they will be punished. Companies that don’t adapt will go bankrupt without question.”
Mr Carney, who steps down in January also said that the global transition needed to tackle the climate crisis could result in an abrupt financial collapse. The longer action to reverse emissions was delayed, the more the risk of collapse would grow.
He has been appointed as UN special envoy for climate action and finance replacing billionaire Michael Bloomberg in the part-time role.
Values increase 104%
The PRI report emphasises that the most proactive companies would win out while the slow movers would suffer. Electric utilities that have the strongest renewables strategy could see values increase by 104%, in contrast to stragglers that face a fall of two-thirds.
Similarly, mining companies that extract essential minerals for the transition could see a 54% rise, while those with the smallest share would face a drop of almost 50%.
The food sector is not immune either and agricultural firms with high exposure to biofuels and non-beef protein sources could gain at least 10% of current value. In contrast, the cattle industry could lose between 15% and 43%, depending on links with deforestation.
Fiona Reynolds, CEO of the PRI, said:
“This analysis underscores the extent to which markets are under-pricing climate transition risk. One in five of the world’s most valuable companies are impacted by at least 10% in either direction.
“While the market-level effects of an abrupt policy response to climate change may appear manageable, this masks a much more complex and significant story, with some huge winners and losers emerging between sectors and within them.
“We are calling on investors to get real on climate policy risk, and this robust modelling exercise and analysis will enable them to do that.”
Jane Ambachtsheer, global head of sustainability at BNP Paribas Asset Management said:
“Investors should anticipate significant and potentially volatile ‘climate transition’ repricing in some parts of the economy and markets.”
Mike Tholen, from industry body Oil and Gas UK pushed back strongly against the thrust of the report, at the same time as evidence mounts on the increase in emissions from oil and gas, most recently at last week’s UN conference on climate change.
“The (oil and gas) majors targeted in this report are actively reducing their carbon footprints, pursuing technologies including Carbon Capture and Storage and diversifying their businesses into a broader mix of renewable energy.
“Oil and gas remain an important part of the energy mix for decades to come, and will be used in an increasingly low carbon manner to meet global energy needs.”
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