Transition losses, vs. longterm losses of delayed inactivity - according to a strategy paper (conjuring up different model scenarios) by the United Nations Environment Program Finance Initiative. (20 large long term investors.)
Scenarios:
https://www.unepfi.org/publications...mate-risk-assessment-in-response-to-the-tcfd/
https://www.unepfi.org/wordpress/wp-content/uploads/2019/05/TCFD-Changing-Course.pdf
Comparing 4 portfolios
- a Market Portfolio of 30,000 companies
- a Top 1,200 Companies Portfolio that closely mimics the MSCI World Index
- a Coal Portfolio, and
- a Renewable Energies Portfolio
across 1.5°C, 2°C and 3°C worlds.
The four portfolios could be seen as "general public", "big companies", "fossil fuel industry", and "renewable energy industry".
What "green positive" investors are caring about is not "saving the world" but rather transitioning to a low carbon economy (think 'because some day oil is going to run out' and other reasons).
In the following I'm only interested in the "general public" portfolio (30.000 companies).
Analysis of a ‘Market Portfolio’ which consists of approximately 30,000 publicly listed companies and represents the investable market at large highlights climate-related investment risk. The 1.5°C scenario, in line with the latest IPCC special report, exposes a significant amount of transition risk, affecting as much as 13.16% of overall portfolio value (Table 2: Policy Risk, 1.5°C). Considering that total assets under management for the largest 500 investment managers in the world total USD 81.2 trillion, this would represent a value loss of USD 10.68 trillion.
Transitioning towards a 1.5°C future in those models (looking at a 15 years timespan from today onwards) would cost 13.1% of portfolio value in policy risk. Representing 10.68 trillion lost across the worlds 500 largest investment managers. (That arent on board (thinking all along the same lines), btw - this is a paper basically trying to convince them to get on board.
As I understand it.)
Now contrast this - with everybody being very hyped about 1.5°C and Greta.
Because companies are already transitioning, negative impact of 'physical risk' isnt as hight and gets reduced to -2.14% in the models.
The good news is that companies have already actively started working on the transition to a low carbon economy. The resulting creation of low carbon technology opportunities therefore offsets this high policy risk noticeably (Table 2: Technology Opportunity, 1.5°C). The physical risk impact is negative at -2.14% and would increase further, if the world is not successful in curbing GHG emissions significantly over the next two decades.
Now what is 'physical risk' in the models?
It is beyond those 15 years that the physical impacts of climate change are forecasted to drastically intensify, especially under higher GHG emissions pathways of 3°C and beyond.
"Bad stuff" from climate change.
Now - this entire decline of portfolio value gets offset by 'technological opportunity' although not as much, that in the next 15 years - we'd see structural growth arising out of it.
Overall, considering that low carbon technology opportunities will help offset the policy risk, and physical risk is minimal for the reasons mentioned above, the total, aggregated value loss under the 1.5°C scenario is substantial at -4.56% or USD 3.7 trillion off the assets of the world’s 500 largest investment managers.
Now that you understand the metrics - lets look at the outcome:
Total outcome (see VaR) for "general public" (30.000 companies) over the next 15 years, transitioning towards a carbon neutral economy. In accordance with climate summit goals. Fucked (-4.56%), fucked (-3.36%), and fucked (-1.84%).
How fucked? Depends on the sector those companies are working in.
Policy risk across sectors:
Aggriculture, Transportation and Utility Services very fucked, the rest fucked. This still gets offset by "technological opportunities" - which look like this:
Doesnt offset risk by much, Transportation still very (as in second most) fucked.
(Other tables for physical risks available as well - but then, thats less risk overall.)
But now we have Greta, and we can do "more faster now". So whats the difference?
Under the GCAM4 scenario the policy risk increases from -8.16% to -9.13%, potentially costing investors a difference of close to 1% if governments were to delay policy action. For this analysis, the sum of the overall discounted costs from policy risk for each company in this Market Portfolio, covering 30,000 companies, was compared the resulting cost impact for the two models. The costs are enormous; USD 4.3 trillion and USD 5.4 trillion, respectively. Delaying policy action under GCAM4 results in a cost increase of USD 1.2 trillion. Even worse, delaying action would not just increase policy risk, but also result in much greater physical impacts from extreme weather hazards (not included here). Table 5 presents the overall results.
Great. 1% less policy risk (already factored into the first table). Thanks Greta.
Please notice, that the authors only plotted the 2°C scenario, because guess what...
Could be a coincidence, but its already what we basically are aiming for.
So that is what Greta is for ("Politics got to act NOW.").
Important numbers are in the first table. How people deal with the next 15 years of economical decline is still up to them and marketing.
In 15 years time I'm 50 btw. Thanks for having been born into the decline generation, that still was presented with their babyboomer family with a "why isnt he wealthy, did he drink away all that he's got, now lets go onto a world cruise by cruiseliner" mindset.
The problem with declining growth - as always is wealth distribution. Over that we can fight once baby boomers have died out. So when I'm 45 to 50.