The rising impact of finance on climate change control

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The Climate Agreement reached at COP21 in Paris last December 2015 has stimulated a new momentum in climate policy worldwide. About 170 countries are likely to implement often ambitious policies to reduce their GHG emissions. New policy-driven investments will be directed to support the transition towards a low-carbon global economy. As a consequence, carbon intense projects and investments are likely to face an increasing risk of stranding. Stranded assets are those that lose value or turn into liabilities before the end of their expected economic life. Assets may be stranded not only by stricter climate change regulation, but also by economics, such as a fall in oil prices, energy innovation, implementation of energy efficiency measures and advances in renewables and electricity storage, or by consumer behavior, product labelling and certification schemes.

” Investors and financial intermediaries with stakes in fossil fuels companies should take three actions on the eve of stricter climate regulation: assessing exposure, evaluating the impacts of this exposure, and managing material risk. Risk exposure can then be managed by a combination of disclosure, divestment, engagement, and diversificationCarlo Carraro comments from his blog while highlighting an emerging framework in which the decisions of financial institutions will be aligned with long-term climate goals. The objective is to more than double resources invested in climate finance.

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