Top companies believe many of the physical, transitional, and reputational risks presented by climate change are likely to hit within the next five years, CDP report reveals
Climate change could wipe almost $1tr off the valuations of more than 200 of the world's biggest companies, with many of the impacts likely to hit within the next five years, a startling corporate data analysis by environmental disclosure non-profit CDP has found.
A report published today by CDP reveals 215 companies representing nearly $17tr in market capitalisation have valued the risks to their businesses from physical, transitional, and reputational climate change impacts at almost $1tr. Tha analysis also reveals many of these risks are expected to have significant impacts over the next five years.
Around $500bn of costs are rated by the companies as highly likely or almost certain, with the most significant threats coming from higher operating costs linked to legal and policy changes related to climate change.
Over 80 per cent of the companies foresee climate impacts such as extreme and volatile weather patterns, rising global temperatures, and increased pricing of greenhouse gas emissions hitting their business, according to CDP.
They also report potential stranded asset losses to the tune of $250bn, including fossil fuel assets that may no longer offer economic returns as the global economy shifts towards low carbon technologies such as renewable energy and electric vehicles, or physical assets that see their valuations eroded by climate impacts such as rising sea levels.
Yet at the same time, only half of fossil fuel companies in the top 500 most valuable companies reporting to CDP provided any financial figures for the climate risks and opportunities they may have identified.
Nicolette Bartlett, director of climate change at CDP, said "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," she explained, adding that it was "clear that corporate action cannot be delayed".
The report also confirms that the opportunities offered up by the low carbon transition are widely seen as significant, with the companies together estimating potential gains from green business opportunities totalling $2.1tr - more than double the forecasted risk-related losses.
On average, the potential value of climate-related opportunities is almost seven times higher than the cost of investing in achieving these opportunities, which is estimated at £311bn, demonstrating expectations among corporates of a huge impending market shift towards climate-friendly products and services.
But the picture is complicated by the fact that not all sectors will see revenues boosted from investing in mitigating climate risks and maximising low carbon opportunities. Power sector companies in the report disclosed substantial costs associated with updating existing power plant infrastructure that they expected to outweigh potential revenue benefits, according to CDP.
On the other hand, companies in the financial sector see the biggest potential revenue boost - totalling $1.2tr - as they develop new green products and services. Multi-billion dollar revenue opportunities were also highlighted by the manufacturing ($338bn), services ($149bn), fossil fuelss ($141bn), and the food, beverage and agriculture industries ($106bn), CDP found.
However, the vast majority of climate-related risks are also concentrated in the financial services industry, which reported almost 80 per cent of all risk value detailed in the report.
Bartlett explained that while the report showed how financial organisation see the most opportunities and value at risk from climate change, this didn't tell the whole story.
"It is likely that this growing awareness is partly caused by the increased scrutiny of regulators and stakeholders," she said. "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."
In total the full report covers almost 7,000 companies which reported data to CDP in 2018, including a sample based on the 500 biggest global firms by market value, 366 of which reported to the organisation. It analyses the climate risks and opportunities in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFDs).
It follows another CDP report last week which laid bare the extent of potential losses global companies and Chinese financial firms could be exposed to due to a widespread lack of awareness of growing deforestation risks in the soy value chain.
The goalposts for climate action and risk management may be clearer than ever. But far too many companies are still missing the open goal offered by effective decarbonisation, risking devastating losses in the process.
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