News | Published December 09 2019

Carbon-emitting firms will lose out under new climate change policies

A report by Vivid Economics, commissioned by the UN-supported Principles for Responsible Investment, has said that companies emitting large amounts of carbon could risk losing as much as 43 per cent of their value as a result of new climate change policies.

In contrast, it is predicted that companies who are looking to help alleviate climate change by reducing carbon output could see their value go up by around 33 per cent.

In the case of automotive firms, those who are the quickest and most efficient in transferring over to electric models could see their value soar by an estimated 108 per cent, while slower businesses could see their values decrease, as future policies are enacted to phase out petrol and diesel cars to help meet looming climate change targets.

With regards to the coal industry, the report says that the largest companies could see their value fall by 44 per cent, with the ten biggest oil and gas firms also potentially losing 31 per cent of their value.

Electric utility companies and agricultural businesses proactively working on a sustainable strategy are also expected to benefit, while those not doing so are likely to suffer.

In the agricultural sector, operators in the likes of the cattle industry could see their value fall by as much as an estimated 43 per cent, depending on their ties to deforestation linked with farming.

The figures are based on the assumption that politicians will muster a swift response to the climate crisis, but they do give weight to governor of the Bank of England Mark Carney’s view that firms who do not take the climate challenge seriously will risk going out of business.

Indeed, some high-profile insurance companies such as AXA are already scaling down their investments in coal with a view to phasing it out entirely over the next decade, and refusing to offer insurance cover to new coal projects.

CEO of the PRI, Fiona Reynolds, feels that some sectors are underestimating the risks associated with changing climate policy.

Reynolds said: “One in five of the world’s most valuable companies are impacted by at least 10 per cent 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.”

The Oil and Gas UK industry body has responded to the findings, reassuring that several industry giants are already working proactively to crack down on carbon emissions.

Mike Tholen, who works for the group, said: “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.”

The Society of Motor Manufacturers and Traders was also confident about the automotive industry’s push toward greener solutions, but warned that some shortcomings must be addressed to allow for a smooth transition.

A spokesperson for the body said: “Vehicle manufacturers and suppliers are investing vast sums in ultra-low and zero emission vehicles to help meet the same environmental goals. We now 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.”

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Authored by

Scott Challinor
Business Editor
December 09 2019

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