Policies designed to combat climate change could permanently slash the value of companies around the world by up to over $2.3 trillion.
That's according to a new report from Principles for Responsible Investment that examines how "inevitable" policies such as banning internal combustion engines will affect stock prices.
The analysis concludes that up to $2.3 trillion, or 4.5%, could be wiped off the value of companies listed on a global stock index from MSCI. The report was prepared by Vivid Economics and Energy Transition Advisers.
But there are also opportunities for investors. Companies that adapt to changing policies would see their combined share prices increase by hundreds of billions of dollars, according to the UN-backed group.
Principles for Responsible Investment is supported by nearly 2,600 asset owners and investors that have a combined $86 trillion of assets under management.
Investors from around the world are putting more pressure on companies over climate change, asking them to be more transparent about the risks to their business from extreme and changing weather.
Many climate change experts have gathered this week in Madrid to attend the COP25 conference. UN Secretary General Antonio Guterres said Sunday that the summit marks the "point of no return" on climate.
The report from Principles for Responsible Investment looks at how valuations would be affected if climate policies changed by 2025. However, policies could change at any time, the authors warn.
The energy sector is expected to be hit the hardest by the shift, followed by autos and utilities.
The changing policy landscape will be driven by bans on internal combustion engines that are expected by 2035, as well as carbon pricing and the phasing out of coal.
The report assumes more power generation from low carbon sources, including nuclear energy.
Energy companies stand to shed nearly 33% off their value, according to the report, with the 10 largest oil and gas producers losing $500 billion of their combined market caps.
Within the energy sector, upstream businesses, which are focused on finding and extracting fossil fuels, will bear the brunt of the pain.
When it comes to mining companies, the value of coal producers could be nearly halved.
Carmakers that shift to electric vehicles and utilities with a strategy for greener alternatives could more than double their valuations, according to Fiona Reynolds, CEO of the Principles for Responsible Investment.
Similarly, producers of solar and wind energy equipment will also likely go up in value as demand increases.
The report suggests that investors should have a good look at how their portfolios might respond to abrupt changes in public policy, and shift into greener assets.
"Investors should anticipate significant and potentially volatile 'climate transition' repricing in some parts of the economy and markets," said Jane Ambachtsheer, global head of sustainability at BNP Paribas Asset Management.