Economists and financial professionals are at least 20 times more likely to believe that climate risk is underestimated by asset markets as opposed to overestimated, NYU’s Stroebel and Wurgler find.
Your investments, even those presumably in the capable hands of professionals, dangerously undervalue climate-change risks.
“ ‘Either the widespread belief that asset prices and insurance markets insufficiently price climate risk is way off, or these markets have a lot catching up to do.’ ” Current market performance aside, in the next five years, respondents told Stroebel and Wurgler, risk concerns center on what are expected to be more demanding and more expensive regulatory rules for companies and their stocks. Companies could be forced to more uniformly report on emissions by the Securities and Exchange Commission and other regulators. So far, climate-change risk, at least in the U.S., has been largely voluntary but has already been heard on more earnings conference calls.
“Even respondents who have low concern about climate change themselves are far more likely to believe that asset markets are underpricing the risks of climate change rather than that they are overpricing them, perhaps consistent with those respondents worrying about potentially underpriced transition risks due to regulatory interventions,” the researchers said.
“ ‘Scientists often describe climate change with superlatives. Urgent. Dire. Existential. The superlatives are all bad. Encouragingly, financial economists are devoting more and more attention to the intersection of climate and finance.’ ” Those who believe in a correlation were more likely to see climate change as associated with “good” rather than “bad” economic conditions, so for instance, a strong economy could produce greater emissions from a business. If those emissions were taxed, the company would pay more but would have the underlying health of the economy to help offset that tax bill.
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Global Temperatures To Pass 1.5C Limit Within 20 Years, U.N. Climate Report WarnsI am a London-based reporter for Forbes covering breaking news. Previously, I have worked as a reporter for a specialist legal publication covering big data and as a freelance journalist and policy analyst covering science, tech and health. I have a master’s degree in Biological Natural Sciences and a master’s degree in the History and Philosophy of Science from the University of Cambridge. Follow me on Twitter theroberthart or email me at rhartforbes.com
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