Large companies around the world are facing up to the fact that climate change could substantially affect their bottom lines within the next five years. Shareholders and regulators have been applying pressure to companies to disclose the specific financial impacts they could face as the planet warms and companies are increasingly making those disclosures.
A non-profit charity called CDP (formerly known as the Carbon Disclosure Project) runs the global disclosure system for investors, companies, cities, states, and regions to manage their environmental impacts. In 2018, more than 7,000 companies submitted reports to CDP and, for the first time, CDP explicitly asked firms to try to calculate how a warming planet might affect them financially.
Analysis of the reports from 215 of the world’s 500 largest corporations revealed that these companies alone potentially faced roughly $1 trillion in costs related to climate change in the decades ahead unless they took proactive steps to prepare.
Climate-related risks range from extreme weather that could disrupt supply chains to stricter climate regulations that could hurt the value of coal, oil, and gas investments. Technology companies like Google’s parent company, Alphabet, Inc., face increased costs to cool energy-hungry data centers as temperatures rise.
In all, the world’s largest companies estimated that at least $250 billion of assets may need to be written off or retired early as the planet heats up. Previous studies, based on computer climate modeling, have estimated that the risks of global warming, if left unmanaged, could cost the world’s financial sector between $1.7 trillion to $24.2 trillion in net present value terms.
Photo, posted February 29, 2016, courtesy of Ben Nuttall via Flickr.