New research conducted at University of Stuttgart reveals the possible financial losses for investors invested in stocks and mutual investment funds traded at the financial center of Frankfurt. The study is taking into account the effects brought by if new regulations would occur in order to achieve the Paris Agreement's two degree target. The research report is based on detailed climate impact assessment data provided by South Pole Group and yourSRI.
Prior to the international climate agreement sealed in December 2015 at COP21 in Paris, a few initial institutional investors reduced some of their invested stocks that were highly dependent on fossil resources and energy.
"Meanwhile a growing discussion among financial markets participants evolved about the possible impacts of a carbon bubble and the thread of stranded assets to their portfolios. More and more it is accepted, that financing directly and indirectly is jointly responsible for global greenhouse gas emissions (financed emissions), global warming and induced adverse environmental impacts." write the authors, Henry Schaefer & Björn Stoltenfeldt. "The current amount of greenhouse gas emissions of firms listed at the Frankfurt stock exchange are only compatible with a 4°C to 6°C target and conflict with the politically intended two degree target."
The conclusion is that the intended reduction of greenhouse gas emissions called for in the Paris Agreement will require radical adjustments in firm- and market behavior. If public institutions regulated according to the 2°C degree target, the study reveals high financial risks associated with high carbon exposure of funds. For firms and investors not prepared for climate friendly regulations, future regulatory changes and mechanisms implemented in line with the Agreement will lead to market price risks for stocks and subsequently for investors, financial markets and financial centers.