Why investors should act in response to climate-related risks and opportunities: a survey of current evidence

The report argues that climate change poses significant physical and transition risks to financial assets, particularly in high-carbon sectors, and that these risks are often not adequately priced into the market. It highlights the potential for 'stranded assets' in fossil fuels and coal, while simultaneously identifying substantial growth opportunities in renewable energy, green infrastructure, and energy efficiency. The document concludes that climate-aware investing is a necessity that can match or outperform conventional benchmarks without sacrificing returns.

• Climate change presents systemic financial risks, with various estimates of the value at risk for global financial assets. Research from June 2018 suggests a 'bursting of the carbon bubble' could slash between $1 trillion and $4 trillion from fossil fuel assets by 2035. Other estimates include an average value at risk of $4.2 trillion across scenarios to 2100, and a 99th percentile probability of $24.2 trillion in losses.
• Transition risks are significant for high-carbon assets, with $1.6 trillion of capital expenditure (33% of the total) at risk under the IEA Beyond 2 Degrees Scenario. Coal is identified as the most financially at risk sector, with no new coal mines recommended for development except possibly in India.
• Coal power generation faces severe economic and regulatory pressures. In the EU, 54% of coal power assets have negative cashflow, a figure expected to rise to 97% by 2030. In the US, stranded value for coal power owners under the B2DS scenario is estimated at £104 billion through 2035.
• Climate risks are frequently mispriced in financial markets because analysts typically focus on short-term timeframes (1-3 years), ignoring long-term non-linear risks described as 'white swans'. This is particularly evident in the energy transition, where carbon pricing is often not factored into calculations.
• The International Energy Agency (IEA) scenarios, widely used by investors, are criticized for being inadequate for supporting Paris Agreement goals. The Sustainable Development Scenario (SDS) is noted to potentially exhaust the 1.5 degree carbon budget by 2023 and the 2 degree budget by 2040.
• Climate-aware investing does not necessarily reduce returns. Evidence shows that portfolios can reduce carbon footprints by 70% while maintaining a 0.3% tracking error against benchmarks. Some MSCI indexes excluding fossil fuel reserves have outperformed the MSCI ACWI index over a 5-year period.
• The transition to a green economy offers massive investment opportunities, with potential demand for new infrastructure generating $90 trillion from 2015-2030. Renewable energy infrastructure is highlighted as a source of stable, low-risk returns of 5-10% or more per annum.
• Physical risks, such as extreme weather, cause direct and indirect financial losses. Examples include Hurricane Sandy causing $30 billion in losses in 2016 and a seven-year California drought costing the economy $2.7 billion in 2015.

APA

Nash, R. (2018). Why investors should act in response to climate-related risks and opportunities: a survey of current evidence. ClientEarth. https://www.clientearth.org/media/1pdemlxh/why-investors-should-act-in-response-to-climate-related-risks-and-opportunities-a-survey-of-current-evidence-coll-en.pdf

Chicago

Nash, Robert. Why investors should act in response to climate-related risks and opportunities: a survey of current evidence. ClientEarth, 2018. https://www.clientearth.org/media/1pdemlxh/why-investors-should-act-in-response-to-climate-related-risks-and-opportunities-a-survey-of-current-evidence-coll-en.pdf.

Wikipedia

{{cite report |last1=Nash |first1=Robert |title=Why investors should act in response to climate-related risks and opportunities: a survey of current evidence |publisher=ClientEarth |date=August 2018 |url=https://www.clientearth.org/media/1pdemlxh/why-investors-should-act-in-response-to-climate-related-risks-and-opportunities-a-survey-of-current-evidence-coll-en.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{nash2018why, author = {Nash, Robert}, title = {{Why investors should act in response to climate-related risks and opportunities: a survey of current evidence}}, institution = {ClientEarth}, year = {2018}, month = aug, url = {https://www.clientearth.org/media/1pdemlxh/why-investors-should-act-in-response-to-climate-related-risks-and-opportunities-a-survey-of-current-evidence-coll-en.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }