Climate change set to impact global markets - report
Author: Simon Johnson
Businesses could face huge extra costs from increasingly frequent natural disasters and from new legislation aimed at reducing emissions of global warming gases, the report by the Carbon Disclosure Project says.
Some could see their value slashed - by as much as 40 percent for some heavy carbon emitters, said the report, which was commissioned by a group of institutional investors overseeing around $4.5 trillion of assets.
Others that identify the risks and implement policies to reduce them will have a competitive advantage, boosting their share price.
"It is almost certain that in the years ahead, a series of trends will continue to amplify the financial impacts of climate change," said Tessa Tennant, Carbon Disclosure Project chairperson.
"This is about security of financial returns as well as about protecting the global environment."
Despite the huge risks and rewards, however, many of the world's top companies are ignoring climate change.
Although 80 percent of respondents in the survey of the world's 500 largest companies recognised climate change as a financial risk, only 35 percent to 40 percent have taken action to mitigate the dangers.
The business world faces threats from climate change on several fronts. Industries such as agriculture and tourism are vulnerable to increasingly extreme weather conditions.
But the effects will be felt across most sectors. With economic losses from natural disasters doubling every 10 years, banks' and insurers' profits are at risk.
Also, governments are increasingly looking at regulating carbon emissions. Industries such as oil, gas and manufacturing are obvious targets for regulatory action. The European Union, parts of the United States and Japan all plan new laws.
Likely tax increases will push up the cost of energy, hitting all industries.
There are gains to be made as well. Reducing carbon emissions can make companies more efficient.
Whole new industries and sectors will also develop, bringing big rewards for companies able to exploit them. For example, the renewable energy market will grow to around $1.9 trillion by 2020 from between $234 billion and $625 billion in 2010, the report says.
With the financial impacts of climate change becoming clearer, investors are beginning to push for change.
Fund companies are increasingly channelling investment into companies that adopt high standards on environmental, social and ethical issues. The belief is that companies which manage these risks are likely to provide better long-term returns to shareholders.
In Britain, parts of Europe and Australia, legislation is also pushing big investors such as pension funds to act, adding to the pressure on companies.
"This report is required reading for directors, executives and investors everywhere," said Tennant.
"Companies failing to take the messages of this report seriously are likely to hear from their shareholders."