Big Companies Foresee $970 Billion in Climate Risk, $2.1 Trillion in Gains from Climate Action
More than 200 of the world’s biggest companies anticipate nearly US$1 trillion in business risk—more than half of it in the next five years—due to climate change, but $2.1 trillion in benefits from climate-friendly products and services, according to an analysis of thousands of corporate disclosures by CDP, the UK non-profit formerly known as the Carbon Disclosure Project.
And notwithstanding the big numbers, the report only covers a small share of the companies that will be affected by the climate crisis, or are already seeing its financial impacts.
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“Some 6,900 companies reported to CDP in 2018 on the financial risks posed to them, both directly and indirectly, from climate change,” BNN Bloomberg reports. “Analysts paid particular attention to respondents from among the largest 500 companies globally. The $2.1 trillion in benefits is estimated from responses at 225 of those biggest companies,” from Silicon Valley technology companies to big European banks.
The $970 billion in costs is based on threats “largely seen to be coming from possible government regulation (such as carbon taxes), market shifts related to climate change (such as higher insurance premiums), or direct interference with operations,” Bloomberg notes.
Financial services companies foresee $700 billion in regulatory risks against $1.2 trillion in benefits, though CDP analysts chastised investors for shining a light on their customers, rather than themselves. The sector “is likely to be missing some risks,” the report states, including impacts beyond “potential risks to their direct operations,” like branding issues or unexpected price swings.
“Under pressure from shareholders and regulators, companies are increasingly disclosing the specific financial impacts they could face as the planet warms, such as extreme weather that could disrupt their supply chains or stricter climate regulations that could hurt the value of coal, oil, and gas investments,” the New York Times reports. “Early estimates suggest that trillions of dollars may ultimately be at stake.”
But CDP says companies are still missing some of the plausible risks they face in a warming world. “The numbers that we’re seeing are already huge, but it’s clear that this is just the tip of the iceberg,” said North American President Bruno Sarda.
CDP says companies expect to see at least $250 billion in assets written off or retired early, including buildings in high-risk flood zones and power plants facing tougher emission standards.
“Many firms are bracing for direct impacts,” the Times writes. “Hitachi Ltd., a Japanese manufacturer, said increased rainfall and flooding in Southeast Asia had the potential to knock out suppliers and that it was taking defensive measures as a result. Banco Santander Brasil, a large Brazilian bank, said increasingly severe droughts in the region might hurt the ability of borrowers to repay loans. Google’s parent company, Alphabet, Inc., noted that rising temperatures could increase the cost of cooling its energy-hungry data centres.”
Public opinion factors into some of the corporate disclosures. “Total, a French energy company, is grappling with the possibility that ambitious efforts by nations to limit global warming and restrict fossil fuel use could render some oil and gas reserves ‘unburnable’,” the Times notes. “BASF, a German chemical company, said it has a ‘significant corporate carbon footprint’ that could scare off environmentally conscious shareholders unless it takes steps to act on climate change.”
And yet, “only a fraction of companies worldwide currently report their climate risks, and many large firms, including energy giants ExxonMobil and Chevron, did not submit a disclosure to CDP last year,” the paper continues. “The companies that do disclose often struggle to tease out precisely how rising temperatures might hurt or help them financially.”Some companies see the potential for profit: as a changing climate spurs the spread of infectious disease, U.S. pharma giant Eli Lilly says it’s poised to respond, even though flooding and storms in places like Puerto Rico could disrupt its manufacturing operations. And Dutch financial services company ING Group, pointing to the $30 trillion in new investments a low-carbon economy could require, is planning to double its climate finance portfolio by 2022.