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Carbon Price Rise Could See 30% Share Price Drop

Van Lanschot Kempen’s annual Carbon Shock Analysis has revealed that a base case scenario of a US$100 global carbon price increase could cause a fall of up to 30% in global equity valuations for polluting companies. The Dutch investment and fiduciary manager’s data suggests that this fall in share prices could range from 6% for Scope 1 and 2 emissions and as much as 30% for Scope 1, 2 and 3 emissions, depending on sector. The analysis shows that the impact of higher carbon prices and the scope of emissions coverage is not “fully priced into markets”, offering “opportunities for investors” in the transition economy. The analysis models a worst-case scenario, and also projects a US$150 global carbon price increase scenario which would see more significant falls in share prices, from 9% for Scope 1 and 2 emissions and up to 43% for Scope 1, 2 and 3 emissions. Current carbon prices are estimated at US$5 per tonne, although Europe’s current carbon price is significantly higher at over €84 (US$88) per tonne. Van Lanschot Kempen said choosing an appropriate sustainable benchmark for a global equity portfolio can lower the carbon price risk by 70%-80%, and even as much as 90% for European equity portfolios. Michel Iglesias del Sol, Chief Investment Strategist, and Arif Saad, UK Investment Strategy Co-Head, said: “Our analysis shows that the sensitivity of equity markets for higher carbon prices has increased over the past year. We need higher carbon prices to have a chance at significantly reducing emissions. However, the greater the increase, the greater the impact on equity valuations.” 

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