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Carbon Value-at-Risk
The global consensus on climate change and growing urgency among governments to take action to reduce greenhouse gas emissions means that carbon is rapidly becoming a liability across all business activities. How does that translate for those making or managing investments? The bottom line is that carbon now represents a risk to the value of holdings and portfolios. It is a dynamic risk whose uncertainties are a function of many factors, including impending carbon taxes or quotas, the nature of the underlying, its location, and so on. But to manage risk it must first be measured, therefore we need a way to quantify the exposure of portfolios to carbon. Building on established best practice, we require a new methodology that can capture the size and probability of the threat—carbon value-at-risk (VaR).
Attachment: Carbon Value-at-Risk