Understanding Investors' Exposure to Climate Stranded Assets to Inform the Post-Carbon Policy Transition in the Eurozone

Abstract

Recently, the risk of climate stranded assets as a consequence of climate change was recognized. Climate policies are expected to strand the value of companies’ assets in particular in CO2 emissions intensive sectors increasing market volatility, with potential negative cascading effects on financial markets and the real economy. So far, information that policy makers can access about potential effects of climate policy outcomes builds on models scenarios of emission reduction costs and opportunities are all characterized by different degrees of uncertainty as regards outcomes and distributional impacts. Information on the level and distribution of investors’ portfolios exposure to sectors of economic activities at risk of climate assets stranded is missing. Such information is fundamental to understand not only the risk posed by climate change for the financial system but also to disclose the characteristics and actors’ lobbying incentives in governance network of the climate finance-policy. In this paper we contribute to fill this gap quantifying current investors’ exposure to potentially climate sensitive sectors in the Eurozone. The goal is to (i) quantify investors’ relevance in listed companies by sector of economic activity (NACERev2) in terms of capital invested and CO2 emissions, (ii) test investors’ portfolios distribution and compare their potential risk of carbon stranded assets, and (iii) discuss data limits and implications for results (mis)understanding.