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Considering the Risk From Future Carbon Prices: The S&P Carbon Price Risk Adjusted Index Series How might carbon pricing affect capital markets in the future?

INTRODUCTION


Along with the advent of the 2015 Paris Climate Agreement has come a growing understanding of the structural changes required across the global economy to shift to low- (or zero-) carbon, sustainable business practices.


The increasing regulation of carbon emissions through taxes, emissions trading schemes, and fossil fuel extraction fees is expected to feature prominently in global efforts to address climate change. Carbon prices are already implemented in 40 countries and 20 cities and regions. Average carbon prices could increase more than sevenfold to USD 120 per metric ton by 2030, as regulations aim to limit the average global temperature increase to 2 degrees Celsius, in accordance with the Paris Agreement.


S&P Dow Jones Indices launched the S&P Carbon Price Risk Adjusted Indices to embed future carbon price risk into today’s index constituents.


The key points included in the index concept are as follows:


S&P Dow Jones Indices launched the S&P Carbon Price Risk Adjusted Indices to embed future carbon price risk into today’s index constituents.


The key points included in the index concept are as follows:


• Carbon pricing risk from a growing array of new policies and taxes leading to potentially significant increased costs for companies.

• Every company having a different carbon emissions profile—its total greenhouse gas (GHG) emissions footprint and where geographically these emissions occur.

• Carbon pricing risk could vary substantially among companies operating in the same business sector. leading to potentially significant increased costs for companies.

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