Global investment manager, Schroders has devised a new model which sets out the extent to which company profits and investor returns could be at risk from more aggressive climate policies and higher carbon prices.

Power plant at night

The “Carbon Value at Risk” (Carbon VaR) framework, unveiled on 4 September, showed that almost half of listed global companies would face a rise or fall of more than 20% in earnings, should carbon prices rise to $100 (£77.41) a tonne. Carbon prices are costs applied to pollution, encouraging companies and other organisations to reduce their greenhouse gas emissions. Schroders said that carbon prices will have to be “far higher” than recent levels, clearing $100, should the international target of 2°C global warming limit to be met.

Schroders’ model works by highlighting the inadequacies of traditional measures of climate risk and problems investors face evaluating the impact of climate change on company profits. It focuses on companies’ business models and profit drivers, rather than solely environmental measures. It measures the impact of rising carbon costs on a company’s profitability more accurately than those provided by carbon footprint analysis.

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