An average $2.5 trillion (£1.76trn) of the world’s financial assets would be at risk from climate change impacts if global temperatures are left to increase by 2.5°C by 2100, warns a new study by the Grantham Research Institute on Climate Change and the Environment at the London School of Economics.

The study, published today in the journal Nature Climate Change, is the first of its kind to produce a comprehensive estimate of the total value at risk from climate change impacts. So far most of the attention has focused on the risk of climate change to fossil fuel companies.

Under the Paris climate deal, nations have agreed to limit global warming to “well below” 2°C from pre-industrial levels. However, under business as usual emissions are set to increase global average temperatures by approximately 2.5°C.

The study estimates that the value at risk would be “significantly reduced” if countries are successful in limiting warming to 2°C by the end of the century. This would see an average $1.7 trillion (£1.2trn) in financial assets at risk compared to the more dangerous 2.5°C climate change scenario.

Even when factoring in the costs of reducing greenhouse gas emissions in an effort to limit warming to 2°C the study finds that global financial assets are set to be worth $315 billion (£221bn) more than under a business as usual scenario.  

Put simply, financial assets are worth more in a world that pays to tackle climate change effectively.

“Our results may surprise investors, but they will not surprise many economists working on climate change,” said lead author, Professor Simon Dietz, “because economic models have over the past few years been generating increasingly pessimistic estimates of the impacts of global warming on future economic growth.”

However, due to the uncertainties in estimating the ‘climate value at risk’ the report finds there is a 1 percent chance that warming of 2.5°C could threaten almost 17 percent of all global financial assets worth $24 trillion ($16.8trn).

Limiting warming to 2°C would see a 1 percent chance that $13.2 trillion (£9.28trn) of the world’s financial assets are put at risk from climate impacts.

“It is important to remember there are huge uncertainties and difficulties in performing economic modelling of climate change,” Dietz noted, “so this [study] should be seen as the first word on the topic, not the last.”

As the study argues, it is important to understand the impact of climate change on asset values because “the possibility that climate change will reduce the long-term returns on investments makes it a matter of fiduciary duty towards fund beneficiaries.”

This is why, for example, many have been advocating for institutional investors such as pension funds to disclose their climate risk and divest from fossil fuel companies.

However, “levels of awareness about climate change remain low in the financial sector as a whole” the report states.

It argues that “for their part, financial regulators need to ensure that financial institutions such as banks are resilient to shocks, hence their growing interest in the possibility of a climate-generated shock.”

As Dietz said: “Our research illustrates the risks of climate change to investment returns in the long run and shows why it should be an important issue for all long-term investors, such as pension funds, as well as financial regulators concerned about the potential for asset-price corrections due to an awareness of climate risks.”

Photo: WIkimedia Commons

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

Thanks to a recent poll from ABC News and the Washington Post, we know that nearly two-thirds of American adults think global warming is “a serious problem facing the country.”

And now, thanks to a study published in the journal Nature Climate Change (full study available at this link), we know exactly how many people are out there taking money from dirty energy interests to try and confuse Americans about climate changeto derail overdue action and protect the fossil fuel industries' profits.

Justin Farrell, a professor of sociology at Yale’s School of Forestry & Environmental Studies and the author of the report, studied both the institutional and social network structure of the climate denier movement and found that there are some 4,556 individuals with ties to 164 organizations that are involved in pushing anti-climate science views on the public.

“The individuals in this bipartite network include interlocking board members, as well as many more informal and overlapping social, political, economic and scientific ties,” Farrell wrote in the report. “The organizations include a complex network of think tanks, foundations, public relations firms, trade associations, and ad hoc groups.”

Farrell notes that while funding from ExxonMobil and the Koch family foundations have notoriously played a part in building the climate denial movement, there was very little empirical evidence demonstrating exactly how much influence these corporate benefactors had on the actual output of climate deniers and, in turn, how much they affected what politicians and other decisionmakers were saying about climate change.

So Farrell studied all of the written and verbal texts relating to climate change produced between 1993 and 2013 by climate denial organizations (40,785 documents comprising nearly 40 million words), as well as any mention of global warming and climate science by three major news channels (14,943 documents), every US president (1,930 documents) and the US Congress (7,786 documents).

He focused on Exxon and the Koch Brothers’ family foundations because, he writes, they are “reliable indicators of a much larger effort of corporate lobbying in the climate change counter-movement."

What Farrell found was that organizations taking funds from “elite” corporate funders of climate denial like Exxon and the Koch Brothers — groups like the CATO Institute, the Heritage Foundation, and the Heartland Institute — “have greater influence over flows of resources, communication, and the production of contrarian information” than other denial groups.

After performing a sophisticated semantic analysis, Farrell was able to show that climate denial organizations with ties to those two major funders were more successful at getting their viewpoint echoed in national news media. Presidential speeches and debate on the floor of Congress showed less of an impact.

According to Bloomberg, Robert Brulle, a sociology professor at Drexel University who has conducted similar research but was not involved in the Nature Climate Change study, said that Farrell’s findings beg a very obvious question:

"Why is the media picking up and promulgating the central themes of climate misinformation?”  

That is very similar to the questions posed by DeSmog's executive director Brendan DeMelle in his coverage of Justin Farrell's other recent study on this issue: Research Confirms ExxonMobil, Koch-funded Climate Denial Echo Chamber Polluted Mainstream Media. DeMelle listed three questions for media outlets to ponder: 

Will this study, published in a highly authoritative journal, finally compel the newsrooms and boardrooms of the traditional media to take responsibility to undo some of the damage done by their complicity in spreading fossil fuel industry-funded misinformation?

Will false balance — quoting a distinguished climate scientist and then speed-dialing Pat Michaels at the Cato Institute for an opposing quote — finally stop?

Will editors commit to serving as referees to ensure the same industry PR pollution isn’t published any longer?

Image credit: P.WOLMUTH/REPORT DIGITAL-REA/Redux

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.