Bloomberg LP Carbon Risk Valuation Tool | Bloomberg LP

“This tool provides insight into a much needed valuation where there currently is no service offering. Providing this level of detail to the capital markets is innovative and forward thinking and I anticipate its usage to grow over time.”

--Environmental Leader Product & Project Awards judge


Bloomberg’s Carbon Risk Valuation Tool, launched in October, helps companies and investors quantify financial risk from carbon costs. The tool is designed specifically to address the concept of a “carbon bubble” championed by organizations such as Carbon Tracker. The tool identifies how earnings may be impacted for oil and gas companies from either regulation to tax carbon or demand shifts away from fossil fuels towards renewables that would decrease the price of oil. It includes several valuation models to identify how earnings changes could lead to changes in share price, and can be used by companies in any sector to model carbon (and energy, water, and waste) costs based on implied futures costs, as well as user-inputted values.

reduced bloomberg imageThe tool also quantifies how good environmental management could lead to positive impacts, rather than simply focusing on negative costs. By tying profitability back to share price, it can also demonstrate the importance of investing in sustainability.

For investors, the issue of a carbon bubble is relatively new and there have yet to be any tools for them to understand what it could mean in terms of share price impact. Bloomberg’s tool allows investors to consider not only the financial impact from the topic, but also to help investors formulate questions that they can ask companies about how they are addressing the issue.

The Carbon Risk Valuation Tool gained attention from investors and companies during its pre-release beta phase as the only tool to illustrate the issue of a carbon bubble in a clear, financial manner, Bloomberg says. As a result of the tool, investors are digging deeper into the issues around embedded carbon risks of fossil fuel companies and are considering how their portfolio returns may be impacted by the issue.

Judges said that at a time when carbon emissions must be better understood in terms of worldwide economic impacts, the tool is unique in its approach and in its ability to quantify emissions in a whole different dimension.