In its Special Report, Global Warming of 1.5ºC, published in late-2018, the Intergovernmental Panel on Climate Change (IPCC) maps out the devastating impact 2ºC above preindustrial global temperatures could have on the environment and the economy. The report makes a clear case for limiting global warming to well below 2ºC, which will require fast and significant structural changes in the global economy – and meaningful action from policymakers, financial institutions and corporations.
A key challenge for investors is understanding how the transition to a low-carbon world might impact asset valuations. The problem is, as noted by Mark Carney, the outgoing Governor of the Bank of England and UN special envoy for climate action and finance, the nature of climate risk – large, potentially non-linear and with uncertain time horizons – makes assessing a company’s resilience for transitioning to a low-carbon world especially difficult.
READ: The roads to a low-carbon transition: What it means for investors
