Investors rarely take the price of CO2 into account when making investment decisions. However, a sharp rise in pricing could have a major impact on equity markets. Research by Van Lanschot Kempen has revealed that a 100$ increase per ton of Co2 emissions could lead to a fall of up to 30% in global equity prices. Investors could reduce risk by selecting an appropriate sustainable benchmark for their global equity portfolio.
More and more companies are paying for the right to emit CO2. Several countries and supranational institutions, including the European Union (EU), have established laws and mechanisms regulating the prices and tradability of CO2 emission allowances: companies can choose between paying (more) for CO2 emissions or investing in cleaner alternatives, with supply and demand ultimately determining the price.