A group of the world’s largest companies across various industries have reported almost $1 trillion at risk from climate change, with a potential $250 billion in losses as a result of write-offs of assets, according to a report by CPD, an international non-profit focused on driving environmental change.
In the global risk transfer industry, the changing climate is often discussed in relation to the potential for more frequent and severe extreme weather events. And, while the climate change debate, and specifically the influence the human race has had will likely go on for some time, the fact of the matter is that the climate is changing and the seas are warming, with the potential impacts reaching far beyond the risk transfer sector to all types of businesses in all types of industries.
In a new report, which analyses the risks and opportunities related to climate change reported by a group of the world’s biggest firms, CPD notes that 215 of these companies, which represent nearly $17 trillion in market capitalisation, report nearly $1 trillion at risk from climate impacts, with many expected to hit within the next five years.
The report finds that more than 80% see major climate impacts, which includes extreme weather patterns, rising global temperatures and increased pricing of greenhouse gas emissions. Reportedly, roughly $500 billion of costs are rated as likely to virtually certain.
At the same time, firms reported a potential $250 billion in losses as a result of stranded assets, which CPD says include fossil fuel assets that now fail to offer economic returns as the economy continues to shift to become a low-carbon economy, or firms that are highly exposed the physical impacts of climate change.
CPD’s Director of Climate Change, Nicolette Bartlett, commented: “The goalposts for climate action have never been clearer for companies. Our analysis shows that there are a multitude of risks posed by climate change, including impaired assets, market changes and physical damages from climate impact, as well as tangible impacts to business bottom lines.
“Following the recommendations of the UN’s IPCC report, our collective response to climate change is more urgent than ever, and it is clear that corporate action cannot be delayed. So it is hugely encouraging that companies are reporting that the potential value of climate opportunities far outweigh the costs of investing in the transition.”
Interestingly, the group of companies also highlighted the substantial business opportunities that can be realised as a result of climate change, and actually reported cumulative gains of $2.1 trillion, with most of these on track as almost certain. Business opportunities as a result of climate change include increased and diversified revenue through greater demand for low emissions products and services.
CPD reveals that on average, the potential value of climate-related opportunities, at $2.1 trillion, is almost seven times the cost of achieving them, at $311 billion. CPD notes that this could result in a substantial shift towards climate-friendly products and services from some of the world’s largest companies in various industries, including financial services, manufacturing, retail and so on.
The vast majority of risks and also the most potential revenue is seen in the financial services sector, with the industry reporting almost 80% of all financial risk value, and potential revenue of $1.2 trillion.
“However, while our research shows that financial organizations see the most opportunities and value at risk from climate change, a more concerning story may sit behind this statistic. It is likely that this growing awareness is partly caused by the increased scrutiny of regulators and stakeholders. And the potential gaps in awareness and disclosure elsewhere in the economy present real risks. Regulators and investors should take note, and all companies from all industries need to step up,” said Bartlett.
