Schroders has predicted that 20% of profits generated by global companies are at risk due to climate change targets stemming from the 2015 Paris Agreement.
The risk would present itself if carbon prices were to rise to the levels required to meet the temperature change commitments that international leaders made in Paris.
Schroders’ sustainability team estimated that if the world was to limit itself to the 2°C temperature rise target agreed in Paris, carbon prices would have to increase from under $5 a tonne currently to well over $100 in order to incentivise decarbonisation on the scale needed.
In the most exposed sectors, like construction, steel and commodity chemicals, sector profits could drop 80%.
The firm said traditional analysis using companies’ carbon footprints and fossil fuel exposures failed to reflect how higher carbon prices would affect their profitability in the future.
Schroders’ analysis is based on its newly launched Carbon Value at Risk (Carbon VAR) model, which is designed to help investors assess the risks posed by higher carbon price on investment portfolios.
Andy Howard, head of sustainable research, Schroders, said: “Carbon footprints continue to dominate [in climate risk management] but at best provide an incomplete and, at worst, a misleading picture of the risks carbon pricing presents to investors.”
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