This is true even if the global average temperature remains at the current 2 degrees Celsius. If the temperature continues to rise and reaches 5C, then the estimate becomes $7tn, not adjusting for inflation.
These numbers were released in a report from the Economist Intelligence Unit, who called for an appropriate carbon tax as one solution to the potential financial problem. The report also supports those who argue that companies need to be legally compelled to report carbon emissions.
The investments that could be lost will be due to extreme weather events caused by climate change, as well as through slowed economic growth as a changing environment provides new challenges to the business and financial sectors.
The $4.2tn figure is approximately equal to the money held in all the world’s publicly listed oil and gas companies combined. For another comparison, $4.2tn is also about the same annual gross domestic product for the entire country of Japan.
Hopefully the news encourages those in the financial sector to take climate change seriously. The Bank of England has even issued a statement warning people not to invest in fossil fuels. The financial sector has not been traditionally concerned about the growing threat of climate change. In fact, estimates by the Asset Owners Disclosure Project reveals that just 7% of investors calculate the carbon footprints of their porfolios and even fewer, 1.5%, are actively trying to reduce it.
The news is good for everyone who has not heavily invested as fossil fuels, as an economic incentive will motivate more people to work harder and longer to solve the problem. Diverting investors away from fossil fuels could also turn their attention to investments in renewable energy sources.