Aggressive climate protection measures are needed to preserve the value of stocks, the study says

MILAN (Reuters) – Policymakers should pursue aggressive policies to control climate change if they want to avoid global stock market losses of more than 50 percent, the EDHEC-Risk Climate Impact think tank warned in a 74-page paper published on Wednesday.

WHY IT IS IMPORTANT

The report aims to show investors how physical climate damage and the costs of transition can significantly affect the value of stocks. It is also relevant for regulators who want to understand how a decline in the value of climate-sensitive assets held by systemically important financial institutions could ultimately threaten financial stability, the report says.

IN NUMBERS

The scale of the losses depends on how aggressive policies are to reduce emissions. More than 40 percent of global equity value is at risk in a case where “almost nothing is done,” and near climate tipping points, losses could rise to over 50 percent, the study concludes. “Swift and robust” action is needed to keep losses below 10 percent.

KEY QUOTE

“Current valuations are most consistent with two market beliefs: either that very strong and effective action will be taken to reduce climate change, thus bringing climate change under control; or that climate change, even if inadequately reduced, will have only a negligible impact on economic output and consumption. Since neither assumption should be considered a very likely scenario, we have argued that there is ample potential for a re-rating of equities,” said the report by a research team led by Professor Riccardo Rebonato.

(Reporting by Danilo Masoni; Editing by Amanda Cooper and William Maclean)