MILAN - Decision makers should pursue aggressive policies to bring climate change under control if they want to avoid losses in the value of global stocks that could top 50%, think-tank EDHEC-Risk Climate Impact warned in a 74-page paper published on Wednesday.


The report aims to show investors how physical climate damage, along with the costs of transition, can have a material impact on the value of stocks. It's also relevant to regulators who want to understand how a loss in value in climate-sensitive assets held at systemically important financial institutions could ultimately threaten financial stability, it said.


The magnitude of losses depends on how aggressive emissions-cutting policy is. More than 40% of global equity value is at risk in a "close-to-no-action" case, with losses potentially surging above 50% near climate tipping-points, the study concludes. "Prompt and robust" action is needed to keep losses below 10%.


"Current valuations are most consistent with two market beliefs: either that very strong and effective abatement action will be undertaken, and climate change will therefore be brought under control; or that climate change, even if poorly abated, will have a negligible effect on economic output and consumption. Since neither assumption should be considered a very likely scenario, we have argued that there is ample potential for equity revaluation", read the report by a research team led by professor Riccardo Rebonato.

(Reporting by Danilo Masoni; Editing by Amanda Cooper and William Maclean)