Climate Change Could Make The Largest Public Companies of The World Shed $1Trillion But With Underlying Opportunities Much More Than That
Climate change is likely to cost the 200 and more largest public companies of the world nearly $1 trillion in the next five years coupled with the more financial burden in store as per a report published on Tuesday. At the same time, the opportunities for new products and services that would reduce damages in the environment could be worth much more.
The charity CDP suggests in a survey published on Tuesday that low-emission products’ growing demand and changes in the preferences of the consumer could generate $2 trillion and more for leading businesses.
CDP, founded in the early 2000s and formerly known as the Carbon Disclosure Project, said, there are nearly 7,000 companies including Apple (AAPL), Infosys, JP Morgan Chase (JPM), Microsoft (MSFT), Nestle, Sony, Unilever, UBS, Visa (V), China Mobile, and BHP that responded to its 2018 survey.
As per the findings of the CDP, 80% of the largest companies expect that significant changes will occur due to climate change, including extreme weather patterns. Still, many companies have not studied the issue carefully yet underestimating the dangers lurking due to climate change, warned by the scientists and unless there is a rapid reduction in carbon emissions, the climate system is on its course to hit the catastrophic tipping points.
“Most companies still have a long way to go in terms of properly assessing climate risk,” said Nicolette Bartlett, director of climate change, CDP, who authored the report.
Nicolette Bartlett said in a statement-“Our collective response to climate change is more urgent than ever, and it is clear that corporate action cannot be delayed.”
“It is hugely encouraging that companies are reporting that the potential value of climate opportunities far outweigh the costs,” she added.
CDP is a part of a coalition of advocacy groups, and investors those believe that there could be a systemic risk to the financial system due to global warming and they are pushing companies to spur enough investment in cleaner industries to reduce carbon emissions in time to meet the goals of global climate. It, therefore, encourages governments and companies to disclose information about climate change.
Around 215 largest public companies worldwide responded to the survey questions of the group on financial risks, locating $970 billion in potential costs due to factors such as chaotic weather, hotter temperatures, and pricing of greenhouse gas emissions in which asset write-offs also included. Half of these expenditures thought to be “likely to virtually certain.”
At present, 225 large firms reported climate-related business opportunities to be worth $2.1 trillion. Most of the possibilities for new revenues that include renewable energy and electric vehicles were described as “highly likely” or “virtually certain.”
According to CDP, investors should expect “a significant shift in climate-friendly products and services from the world’s largest companies,” by the gap between costs and opportunities.
The companies included in the CDP study have a combined market capitalization of roughly $17 trillion and identified potential opportunities worth $2.1 trillion, arising from the demand is more than expected for electric vehicles to investments in renewables.
Financial services companies reported a trend in which the largest costs (including to their clients) and opportunities which, according to Bartlett, attributed to increased awareness generated by scrutiny from stakeholders and regulators.
“The potential gaps in awareness and disclosure elsewhere in the economy present real risks,” she said. “Regulators and investors should take note, and all companies from all industries need to step up.”
Large public companies are on immense pressure to do more on climate change after the landmark report by the United Nations published last year.
As the UN report warned, the world has only 12 years to prevent a climate disaster and called for “rapid, far-reaching and unprecedented changes in all aspects of society.”
Gauging The Remarkable Transition
In many countries, an upsurge in climate activism like the wildfires, heat waves, droughts, and super-storms fueled by climate change sharply increased the climate risk causing concern for investors that is harder to ignore.
In April, Mark Carney, Bank of England Governor and Francois Villeroy de Galhau, head of the French central bank, warned about the risk of a climate-driven “Minsky moment” for which asset prices may suddenly collapse unless business adopts a greater disclosure.
The questionnaires of CDP are at par with the Taskforce’s reporting requirements on Financial Disclosures related to climate which is a voluntary initiative launched by the G20 in 2015 and will publish a status report on Wednesday.
British-based CDP admits that its research cannot provide a perfect picture of what companies are thinking as there is lack of mandatory reporting requirements on climate risk and it has to depend on the figures the executives are willing to share.
However, the charity argues that the degree of companies’ willingness to participate is a yardstick to judge the different sectors’ relative transparency and creates peer pressure for greater disclosure.
The fact is that no sector was entirely transparent on climate risk. Financial services companies were among the most forthcoming respondents, accounting for nearly 70 to 80 percent of the estimated costs and opportunities, CDP said.
The responses of fossil fuel companies to the study reported $140 billion of potential opportunities driving a low-carbon economy and that is five times and more the $25 billion value of the identified risks, CDP said.
CDP also urged investors to inquire why fossil players seemed so confident of making a profit from this energy transition that would render their existing business models obsolete as the focus of the climate action is primarily on limiting the burning of coal, oil, and gas.
“The financial sector seems to be identifying more risks than the real economy,” said Pedro Faria, a strategic advisor to CDP. “This raises the question: who is managing these risks?”