Investors and financial regulators are increasingly aware of climate-change risks. So far, most of the attention has fallen on whether controls on carbon emissions will strand the assets of fossilfuel companies. 1,2 However, it is no less important to ask, what might be the impact of climate change itself on asset values? Here we show how a leading Integrated Assessment Model can be used to estimate the impact of 21 st century climate change on the present market value of global financial assets. We find that the expected 'climate value at risk' (climate VaR) of global financial assets today is 1.8% along a business-as-usual emissions path. Taking a representative estimate of global financial assets, this amounts to $2.5 trillion. However, much of the risk is in the tail. For example, the 99 th percentile climate VaR is 16.9%, or $24.2 trillion. These estimates would constitute a substantial write-down in the fundamental value of financial assets. Cutting emissions to limit warming to no more than 2°C reduces the climate VaR by an expected 0.6 percentage points, and the 99 th percentile reduction is 7.7 percentage points. Including mitigation costs, the present value of global financial assets is an expected 0.2% higher when warming is limited to no more than 2°C, compared with business as usual. The 99 th percentile is 9.1% higher. Limiting warming to no more than 2°C makes financial sense to risk-neutral investors -and even more so to the risk averse.The impact of climate change on the financial sector has been little researched to date, with the exception of some kinds of insurance. 3 Yet, if the economic impacts of climate change are as large as some studies have suggested, 4-6 then, since financial assets are ultimately backed by economic activities, it follows that the impact of climate change on financial assets could also be significant.The value of a financial asset derives from its owner's contractual claim on income such as a bond or share/stock. It is created by an economic agent raising a liability that will ultimately be paid off from a flow of output of goods and services. For example, a firm pays its shareholders' dividends out of its production earnings, and a household usually pays its mortgage from its wages. Output is the result of a production process, which combines knowledge, labour, intermediate inputs and non-financial or capital assets. Therefore there are two principal ways in which climate change can affect the value of financial assets. First, it can directly destroy or accelerate the depreciation of capital assets, for example through its connection with extreme weather events. 7 Second, it can change (usually reduce) the outputs achievable with given inputs, which amounts to a change in the return on capital assets, in the productivity of knowledge, 8 and/or in labour productivity and hence wages. 9 Why is it important to know the impact of climate change on asset values? Institutional investors, notably pension funds, have been in the vanguard of work in this area: 10 for them...

Integrated assessment models can help quantifying the implications of international climate agreements and regional climate action. This paper reviews scenario results from model intercomparison projects to explore different possible outcomes of post 2020 climate negotiations, recently announced pledges and their relation to 2°C. We provide key information for all the major economies such as the year of emission peaking, the regional carbon budgets and emissions allowances. We highlight the distributional consequences of climate policies, and discuss the role of carbon markets for financing clean energy investments, and achieving efficiency and equity.So far, international climate policy has been ineffective in curbing the rise of global greenhouse-gas emissions. Still, ambitious climate targets such as the 2°C target require a phase-out of global emissions by the end of the century, and an active participation of all world regions in climate policy 1 . Given the many obstacles to global cooperative action on climate change, the question remains how diverse national climate policies can be coordinated and strengthened globally. Within the United Nations Framework Convention on Climate Change (UNFCCC), the Durban Platform for Enhanced 2 Action 2 provides an important platform for a post-2020 international climate agreement. It contains several innovative elements, most notably a focus on the major economies that goes beyond the traditional divide between Annex I and non-Annex I countries. The Durban platform calls for a new climate treaty to be agreed in 2015 and implemented as early as 2020. The recently announced USChina climate deal and the EU climate framework provide encouraging steps forwards, but aligning the incentives of the major emitters in pursuing stringent climate policies remains a challenge. In this paper, we aim at assessing the implications of post 2020 climate policies with specific reference to the major economies. We provide quantitative estimates of regional emission budgets, timing of emission peaking, and distribution of mitigation costs. We examine the role of carbon markets and different burden sharing schemes to alleviate distributional inequalities and finance the investment needs in low carbon mitigation technologies. In order to quantify these policy relevant variables, we resort to global models.Integrated assessment models (IAMs) are tools designed to investigate the implications of achieving climate and other objectives in an integrated and rigorous framework. They are numerical models that account for major interactions among energy, land-use, economic and climate systems. Model differ in the economic, technological and sectoral representation and in the way they are solved, with some models maximizing an inter-temporal objective function (such as economic activity) and others simulating a set of equilibria (see the SOM for individual model description and references to documentation). Models generate global long-term scenarios for a number of regions or countries that ca...

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