Companies risk losing $1trillion in five years from climate change

A group of the world’s biggest companies representing nearly $17 trillion in market capitalization have valued the climate risks to their businesses at almost $1 trillion – with many likely to hit within the next five years.

This is revealed in a groundbreaking new report published by CDP, formerly Carbon Disclosure Project, which runs the global disclosure system for environmental information.

Over 80 per cent see major climate impacts, including extreme weather patterns, rising global temperatures and increased pricing of greenhouse gas emissions. Around $500 billion of costs are rated as likely to virtually certain, with higher operating costs linked to legal and policy changes making up a significant risk.

Companies report potential $250 billion in losses due to stranded assets – these include fossil fuel assets that may no longer offer economic returns as a result of market shifts associated with the transition to a low-carbon economy, or companies that are significantly exposed to the physical impacts of climate change.

But the group also reported cumulative gains from realising business opportunities related to climate change at $2.1 trillion, with the majority on track as almost certain. These opportunities include increased revenue through demand for low emissions products and services (such as electric vehicles), shifting consumer preferences and increased capital availability as financial institutions increasingly favor low-emissions producers.

On average, the potential value of climate-related opportunities is almost seven times the cost of achieving them ($311bn in costs, $2.1 trillion in opportunities). Given this, investors and stakeholders could expect to see a significant shift in climate-friendly products and services from the world’s largest companies.

Companies in the financial sector see the most potential revenue ($1.2 trillion) from potential new sustainable products and services, followed by manufacturing ($338 billion), services ($149 billion), fossil fuels ($141 billion) and the food, beverage & agriculture industries ($106 billion).The vast majority of risks are also concentrated in the financial services industry – the sector reported almost 80 per cent of all financial risk value.

Director of Climate Change, CDP, 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.

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.”

Other key findings from the report include:
One, only half of the fossil fuel companies in the Global 500 provided any financial figures for the substantive risks and opportunities identified.

Two, power companies represent one of the few industries where the costs to manage risks, or realize opportunities, outweigh their impact on the business. Three, disclosures centered around the substantial costs associated with updating existing power plant infrastructure.

The full report covers 6937 companies who reported data to CDP in 2018, including a sample based on the 500 biggest global companies by market cap, 366 of which reported to CDP. It analyzes the risks and opportunities related to climate change reported by companies in 2018 in line with the recommendations from Mark Carney’s Task Force on Climate-related Financial Disclosures (TCFD).

CDP is an international non-profit that drives companies and governments to reduce their greenhouse gas emissions, safeguard water resources and protect forests. Voted number one climate research provider by investors and working with institutional investors with assets of $96 trillion.

It leverages investor and buyer power to motivate companies to disclose and manage their environmental impacts.