US$1 trillion at risk in climate crisis

LONDON: June 2019. A report from the Carbon Disclosure Project (CDP) says the world’s biggest companies, with a market capitalization of US$17 trillion, face US$1 trillion in climate crisis risk.

CDP is an international non-profit that leverages investors’ assets of US$96 trillion to motivate corporations to disclose and manage their environmental impact. The organisation’s new report covers nearly 7,000 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. However only half of the fossil fuel corporations in the Global 500 provided any financial figures for the substantive risks and opportunities identified.

For a quick overview, here are the highlights:
• 215 biggest global companies report almost US$1 trillion at risk from climate impacts, with many likely to hit within the next 5 years
• Companies report potential US$250 billion in losses due to the write-offs of assets
• Climate business opportunities calculated at US$2.1 trillion, nearly all of which are highly likely or virtually certain
• Potential value of sustainable business opportunities almost seven times the cost of realizing them (US$311 billion in costs, US$2.1 trillion in opportunities)
• Financial companies forecast US$1.2 trillion in potential revenue from low emission products & services
• Financial services industry represents almost 80 percent of the total potential financial impacts in the sample set
• Fossil fuel companies report more opportunities than risks from the low-carbon transition, raising questions about what they are reporting.

Over 80 percent of the reporting companies see major climate impacts, including extreme weather patterns, rising global temperatures and increased pricing of greenhouse gas emissions. Around US$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 expect a potential US$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 the growing climate crisis.

But the group also reported cumulative gains from realising business opportunities from the crisis at US$2.1 trillion, with the majority “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 favour low-emissions producers.

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

The financial sector see the most potential revenue (USD$1.2 trillion) from new sustainable products & services, followed by manufacturing (US$338 billion), services (US$149 billion), fossil fuels (US$141 billion) and the food, beverage & agriculture industries (US$106 billion).The vast majority of risks are also concentrated in the financial services industry, notes the study.

Nicolette Bartlett, director of Climate Change, CDP 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.”