If the global mean temperature rises by 2.5 degrees Celsius above pre-industrial levels by 2100, an average of $2.5 trillion, or 1.8 percent, of the world’s financial assets would be at risk, according to a report issued Monday by Vivid Economics and the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science. “We also found that cutting greenhouse gases to limit global warming to no more than 2[-degrees Celsius] substantially reduces the climate Value at Risk, particularly the tail risk of big losses,” Grantham Co-Director Simon Dietz, lead author on the paper, said in a press release.
According to the paper, even when the costs of reducing greenhouse gas emissions to limit warming to 2 degrees Celsius is factored in, the average value of global financial assets would be $315 billion, higher than if warming of 2.5-degrees Celsius by 2100 occurred along a ‘business as usual’ pathway.
“When we take into account the financial impacts of efforts to cut emissions, we still find the expected value of financial assets is higher in a world that limits warming to 2°C. This means risk-neutral investors would choose to cut emissions, and risk-averse investors would be even more keen to do so,” Dietz said.
