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Carbon Tax commentary - A global perspective

21 February 2019 Schroders

The Minister of Finance, Tito Mboweni, announced that the Carbon Tax Bill will be implemented from 1 June 2019. Please find commentary below from Andrew Howard, Head of Sustainable Research at Schroders.

“Carbon pricing schemes are gathering momentum globally with almost one-quarter of the world’s carbon emissions now facing a financial penalty. However, in general those prices are too low to drive the changes we need to keep temperature increases to levels that will hopefully be safe. 

“We believe the $8-9 per tonne level that we understand South Africa is planning to implement falls short of the levels close to $100 we expect will be needed. That said, it’s a start, and sets a platform for tougher action in the future. 

“Another aspect to consider is that at higher prices, significant impacts on companies’ profits and valuations seems inevitable. As a result we have developed a Carbon Value at Risk model to examine the risks companies face (Click here to access) and globally, we estimate that about 15% of listed companies’ value is at risk if carbon prices rise far enough to address the climate challenge facing global societies.

“It is critical that investors examine and plan for those impacts before they unfold. Climate change is no longer a theoretical question for investors, if it ever was. There are no short cuts for asset managers - we have invested a lot of time and energy to make sure we are preparing as well as we can and hopefully others in the industry will do so too.”

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Financial behaviour experts suggest that today’s risk modelling methodologies ignore your client’s emotional ability / behavioural capacity. What are your thoughts on spicing up risk profiling tools to make allowance for your client’s financial behaviours

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[a] Bring it on; my client’s make too many irrational financial decisions
[b] Existing risk profiling tools are adequate
[c] Risk profiling tools should be based on the model / rational client
[d] The perfect risk profiling tool is science fiction
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