Poor prep for low carbon economy could slash sector values by 65 per cent

Carbon Trust/McKinsey report says investors must now start discriminating against climate change laggards.

Companies in the aluminium and automobile sectors could see up to 65% of their value wiped out in the coming years if they do not prepare for the transition to a low carbon economy, according to a report published today (Sept 22) by the Carbon Trust, an independent company set up by the UK government in response to the threat of climate change.
Conversely, it says, companies in the other sectors such as building could boost valuations by up to 80% by taking a proactive approach to climate change. The report, which examines six industry sectors: aluminium, auto, beer, building materials, consumer electronics and oil and gas, with an estimated market value of $7 trillion (€4.8 trillion), says strategic investors should now be discriminating between sectors and companies on the basis of their opportunities and risks. Using analysis by McKinsey & Co, it looks at where the transition to a low carbon economy advocated by scientists could impact valuations. It finds that the effects vary significantly by sector, dependent on issues such as consumer behaviour, technology innovation and regulation.Tom Delay, chief executive of the Carbon Trust said: “Climate change will cause a revolution in business and our findings should act as a trillion dollar wake up call to the investment and business communities. Companies and investors that prepare now and develop new strategies will reap the commercial rewards of the move to a low carbon economy. The financial risks of inaction are just too vast to ignore. We can see a trillion dollars of company value change, with leading, well-positioned companies gaining and badly positioned or slow companies losing out.”
The report defines the percentage opportunity or risk for a company as the relative increase or reduction in value based on the net present value of anticipated future cash flows. It says shifts in company value will depend on its level of preparation and sector exposure.
It also outlines clear recommendations for investors, business and policy makers on how to make the shift to a low carbon economy as efficient as possible.
Link to Carbon Trust site

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