Price tag to fight global warming will make you sweat

Shifting the global economy to low-carbon mode will require an estimated US$100-trillion to US$150-trillion worth of investment over the next 30 years, according to a new report.

Industry trade group Global Financial Markets Association (GFMA) published a report, along with Boston Consulting Group, that examines the emerging climate finance market.

It finds that meeting the commitments made under the Paris Agreement to limit global warming will require a fundamental transformation of the global economy, requiring much greater investment.

The overall estimate of US$100-trillion to US$150-trillion worth of new investment translates into at least US$3 trillion to US$5 trillion of investment per year, which would be between five and eight times higher than current levels, the report said.

To generate this sort of investment, “the price of carbon must rise to fully price in emissions,” it suggested.

Moreover, the report said that climate finance needs aren’t linear, meaning that a lack of action now will translate into even greater investment needs in the future.

Given the scale of the challenge, the report called for coordinated action by the government and the private sector to significantly grow the climate finance market, with a view to developing the financial and risk management tools that are needed to catalyze investment.

“The unprecedented call to action aims to help mitigate substantial mis-pricing and potential financial stability risks which would undermine the long-run ability of the financial system to direct finance to fully support the Paris-aligned transition,” the GFMA said.

The paper also sets out the role for capital markets firms and other market participants to facilitate the transition, while continuing to serve investors and clients.

“[T]o meet the targets set out in the Paris Agreement, we need to act quickly to build a high-functioning market structure that can facilitate a significant increase in the level of investment in the climate transition,” said Steve Ashley, GFMA chairman and head of the wholesale division at Nomura, in a release.

“It’s important to note that, while the banking and capital markets sector stands ready to facilitate change, we need the support of policy-makers and the wider private sector to create the incentives to make this work,” he said. “We hope this report will act as a call to action.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.