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$1tn climate hit to business predicted by 200 of world’s biggest companies

Image credit: Reuters

More than 200 of the world’s largest listed companies predict that climate change could cost them a combined total of around $1tn (£790bn), with much of it due in the next five years, according to a new report.

The report, conducted by the environmental charity CDP, has suggested that many companies underestimated the dangers, with scientists warning that Earth’s climate system is on course to hit catastrophic tipping points without rapid cuts in carbon emissions.

Nicolette Bartlett, CDP’s director of climate change and author of the report, said: “Most companies still have a long way to go in terms of properly assessing climate risk.”

Previously known as the Carbon Disclosure Project and founded in the early 2000s, CDP is an organisation based in the UK which supports companies and cities to disclose the environmental impact of major corporations.

It is also a respected voice in a growing coalition of pressure groups, fund managers, central bankers and politicians who believe global warming poses a systemic risk to the financial system.

Advocates hope to spur enough investment in cleaner industries to cut carbon emission in time to meet global climate goals - as outlined in the United Nations’ Paris Agreement, drafted in 2015 - by pushing chief executives of major corporations to confront risks to their operations.

In its latest study, CDP analysed survey data from 215 of the largest companies, ranging from Apple and Microsoft to Unilever, UBS, Nestle, China Mobile, Infosys, Sony and BHP.

The companies anticipated a total of $970bn (£765bn) in extra costs due to factors including hotter temperatures, chaotic weather and pricing of greenhouse gas emissions, with around half of these costs described as being “likely to virtually certain.”

Furthermore, many of the companies included in the study saw a huge potential upside if the world can de-carbonise in time to avert the bleakest of climate scenarios, which scientists and climate change experts see as an existential risk to industrial civilisation.

The companies in the CDP study, which have a combined market capitalisation of roughly $17tn (£13.4tn), saw potential opportunities worth $2.1tn (£1.7tn), spanning faster-than-expected demand for electric vehicles to investments in renewables.

Investor concerns over climate risk have risen sharply in parallel with an upsurge in climate activism in many countries as the heat waves, droughts, wildfires and super-storms fuelled by climate change have become harder to ignore.

In April 2019, Bank of England governor Mark Carney and Francois Villeroy de Galhau, head of the French central bank, warned of the risk of a climate-driven “Minsky moment” – a sudden collapse in asset prices – unless business embraced greater disclosure.

Members of the CPD have acknowledged that the research conducted cannot provide a “perfect snapshot of companies’ thinking”, as a lack of mandatory reporting requirements on climate risk means it has to rely on the figure’s which executives are willing to share.

However, the charity argues that the degree to which companies are willing to engage provides a scale in which to judge the relative transparency of different sectors, generating peer pressure for greater disclosure.

According to the CDP report, although no sector was entirely transparent on climate risk, financial services companies tended to be among the most forthcoming respondents, accounting for around 70-80 per cent of the estimate costs and opportunities.

Furthermore, fossil fuel companies who submitted responses to the study reported $140bn (£110bn) of potential opportunities in the drive towards a low-carbon economy. According to the CDP, this is more than five times the $25bn (£20bn)  value of the risks they identified.

With climate action focused on limiting the burning of coal, oil and gas, CDP also urged investors to question why fossil fuel players seemed so confident of benefiting from an energy transition that would render their existing business models obsolete.

“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?”

In late May 2019, Amazon shareholders submitted a wide range of resolutions, including demands that the e-commerce giant reduce its use of fossil fuels and disclose its total carbon footprint.

Also, in January 2019, according to a report from Amsterdam-based social enterprise Circle Economy, governments around the world need to do more to encourage the adoption of circular economy practices in order to prevent climate change.

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