'Abrupt' climate policies could see high-emitting firms lose 43% of their value, research claims

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Companies with the highest level of carbon emissions will lose 43% of their value by 2025 as governments around the world implement climate policies, a new report has claimed.

Published Monday, the report from the UN-backed Principles of Responsible Investing (PRI), Vivid Economics and Energy Transition Advisors estimated how hard the world's most valuable firms would be hit by environmental policies in the coming decades. It analyzed how companies in the MSCI ACWI index — which includes more than 2,700 firms across 49 countries — would be impacted by "an abrupt and disruptive policy response to climate change."

According to the report, an "inevitable policy response" would permanently wipe up to $2.3 trillion from the value of the companies in the index.

The 100 highest-emitting companies in the index would lose 43% of their market capitalization by 2025, equivalent to a total loss of $1.4 trillion, it claimed, while the 100 best-performing firms could see their value increase by 33%, a total gain of $700 billion.

Fossil fuel companies would be hardest hit, PRI said, with the report's authors expecting the sector to lose a third of its value as margins were squeezed by "demand destruction." Among the biggest losers would be coal companies, according to the forecast, with PRI expecting them to lose 44% of their value and 64% of their profits as a result of new climate policies.

PRI claimed the 10 most valuable companies in the oil and gas sector, meanwhile, could see their valuations drop by 31%, an equivalent loss of half a trillion dollars.

The report predicted that oil would peak around 2027, with corporate profits from the commodity falling by 34%. Natural gas was expected to peak around 2040, with profits from gas expected to decline by 29%, PRI claimed.

Speaking to CNBC's "Squawk Box Europe" on Monday, Michele Della Vigna, head of EMEA natural resources research at Goldman Sachs, shared a conflicting view, arguing that climate-friendly policies were sparking "the beginning of a major business transformation for big oil."

"On one side, it takes big oil's capital and risk management capabilities and applies it to green technologies, from renewables to sequestration to reforestation," he explained.

"On the other side, by restricting the access to capital for the broader industry in the old oil and gas, it actually lifts the returns and the free cash generation in the oil business allowing them to finance this transition towards green energy — which is why I believe, in climate change, big oil will see improving profitability as they transform into big energy."

However, Giles Keating, senior advisor at Torchwood Capital, disagreed, describing Della Vigna's outlook as "a great Panglossian view."

"Look at what happened with the autos industry, they kind of pretended to do electric cars for a decade and said the technology doesn't really work, and we all know where that ended up — a collapse in demand, a collapse in their profits and their share prices. I actually think the oil majors are going much the same way," he told CNBC on Monday.

Hard-hitting policies

PRI's forecast outlined several specific policies that would have the most financial impact on the biggest polluters.

They included bans on internal combustion engines, which PRI said would lead to a fall in fossil fuel demand, as well as an expected 93% of energy being supplied by low-carbon sources by 2050. Zero deforestation policies and a switch to ultra-low emission vehicles would also have a big impact on profitability and valuations, the report said.

Elsewhere, carbon pricing policies would add "crippling costs for higher emitters," the report noted.

A carbon price can be implemented by taxing the distribution, sale or use of fossil fuels based on their carbon content, or via a quota system that sets regional emissions allowances in advance and lets companies bid for "permits to pollute."

Speaking at a conference in London in October, BP CEO Bob Dudley said carbon pricing would be the most efficient policy at cutting emissions.

"Get a price on carbon and boy, the market will respond," he said. "That's going to change the (emissions) situation more than 18-month or four-year outlooks from politicians."