Fossil fuel firms and other emission-intensive businesses could see their value fall by over 50%, because of emerging climate policies, a new report concludes.

The report, commissioned by the UN-backed Principles for Responsible Investment (PRI) group, highlights a number of sectors where tighter regulations on carbon-related activities will have a significant negative effect on future value, while other more sustainable businesses will see value increase.

The fossil fuel sector, for example, could lose a third of its value, highest of any sector. Companies engaged in coal mining could see a 44% fall in value, with coal profits falling by 64% as thermal coal for electricity generation reaches its peak and declines rapidly over the next 20 years.

The ten largest companies in the integrated oil & gas exploration and production sector could lose nearly a third (31%) of current value, or $0.5tn, with upstream players being hardest hit (-38%), relative to downstream (-29%). Natural gas profits are also expected to peak around 2040, with value loses of around -29% according to the research.

Commenting on the report, Fiona Reynolds, Chief Executive of the PRI, said 93% of institutional investors recognise the financial market is not pricing climate risk and business value loss could mean some companies might never recover.

“So, it’s time to get real about policy risks coming down the line. And to help them capture the opportunities and avoid significant risks, investors need a realistic business outlook about how the future is most likely to unfold,” Reynolds wrote.

Vivid Economics, which carried out the study for the UN, also highlights a number of sectors where changes in climate policies is likely to generate an increase in value.

Car-makers that are already transitioning to electric vehicles (EVs) are projected to increase in value by 108%, while minerals mining companies that produce cobalt, copper, lithium, nickel and silver (ore), critical to EVs and other energy storage utilities could see a 54% in value.

The report also predicts 93% of power generation will come from low carbon sources by 2050, including hydro, solar, wind, biomass and nuclear. The best performing 10% of companies in this sector could see their value more than double at 104%, largely because its asset base is 75% less emissions-intensive than the sector average.

Last reviewed 12 December 2019