In Brief

Climate change could cost the world £1.8tn if left unchecked

Long-term investors 'would be better off in a low-carbon world', says LSE professor

Climate change could cost the world trillions of pounds, according to a new study by the London School of Economics.

"Our work suggests to long-term investors that we would be better off in a low-carbon world," Professor Simon Dietz, the lead author of the report into the financial implications of climate change, told The Guardian.

Using a variety of models and based on pre-existing estimates of global GDP growth under various climate conditions and assumed weather-related consequences, the economists sought to estimate the "value at risk" around the world as a result of climate change.

"The study did not try to identify which sectors were most at risk," reports Reuters. Rather, it sought to estimate the potential value that could be wiped out due to the damage that climate change can wreak, "from the destruction of buildings, bridges or roads by storms or floods, to losses of agricultural productivity and enforced movement of populations".

In its core scenario, the paper states that if climate change is left unchecked and temperatures rise by 2.5C by the end of the century, then $2.5tn (£1.8tn) of value could be lost. If the world instead adheres to the terms of the deal struck in Paris at the end of last year to keep temperature rises below two degrees, this hit would be reduced by $800bn (£565bn).

At the most extreme end of the risk spectrum is a one per cent chance that losses would be as much as $24tn (£17tn) if climate change is not tackled, falling to $13tn (£12tn) under the two degree model.

The findings show that investors should be pushing for more action to limit carbon emissions and that long-term investors like pension funds in particular should be "getting on top of this issue", said Dietz.

He added that under any scenario, climate change will wipe value from global assets. The $5tn (£3.5tn) aggregate value of fossil fuel companies is under threat in particular, as the terms of the Paris deal imply much of the current reserves of oil and gas are left untouched.

"There is no scenario in which the risk to financial assets are unaffected by climate change. That is just a fiction," warned Dietz. "There will be winners and losers."

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