A group of 215 of the world’s biggest companies representing nearly US$17 trillion in market capitalisation have valued the climate risks to their businesses at almost US$1 trillion – with many of these risks expected to hit within the next five years.
CDP, formerly the Carbon Disclosure Project and the organisation which runs the global disclosure system for environmental information, published a ground-breaking new report on Tuesday which analysed responses to CDP’s questionnaire in 2018 from 6,937 companies.
The report also included a separate sample based on 500 of the world’s biggest global companies by market cap, 366 of which reported to CDP in 2018.
The report analysed the risks and opportunities related to climate change in 2018 in line with the recommendations from Mark Carney’s Task Force on Climate-related Financial Disclosures – a group set up in 2015 by the Financial Stability Board “to develop voluntary, consistent climate-related financial risk disclosures for use by companies, banks, and investors in providing information to stakeholders.”
The report outlined several key findings related to the way in which companies are reporting and analysing their climate-related risks, but the most important takeaway from the report was found in the analysis of 500 of the world’s biggest companies.
Specifically, 215 companies within this sub-sample – representing US$16.95 trillion in market cap – provided estimations of the potential financial implications for a proportion of their reported risks which, according to CDP, came to just under a trillion dollars (around US$970 billion).
Further, and most chilling, is that over half of these risks were reported by these companies as being “likely/very likely/virtually certain” and are expected to materialise in the short- to medium-term, which works out to be around five years, or earlier.
On top of that, approximately US$250 billion of this trillion-dollar figure is linked to asset impairments or write-offs – more commonly known as “stranded assets” – as a result of both transition and physical risks.
“The goalposts for climate action have never been clearer for companies,” explained Nicolette Bartlett, Director of Climate Change, CDP. “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.”
Put another way, CDP are concerned that the “increased scrutiny of regulators and stakeholders” is not being replicated in other sectors, and is limited to the finance sector partly due to its continued provision of capital to fossil fuel and power companies, which in and of itself is the cause for the aforementioned “increased scrutiny”.
The report also showed that over 80% of the world’s largest companies see major climate impacts – including extreme weather patterns, rising global temperatures, and increased pricing of greenhouse gas emissions – while 225 of the world’s 500 biggest companies reported climate-related opportunities which represent potential financial impacts totalling over US$2.1 trillion – the majority of which is driven by the potential increase in revenue due to demand for low emissions products and services.
Importantly, on average, the potential value of climate-related opportunities is almost 7-times the cost of achieving them – US$311 billion in costs compared to US$2.1 trillion in opportunities. It is companies in the financial sector, however, which see the most potential revenue (of around US$1.2 trillion) from potential new sustainable products and services.
The financial sector is then followed by the manufacturing sector (seeing $338 billion in potential revenue), services ($149 billion), fossil fuels ($141 billion), and the food, beverage and agriculture industries ($106 billion).