World’s Largest Companies Risk $1 Trillion In Climate Change Threats

A new report from CDP has revealed that a group of the world’s largest companies — together representing nearly $17 trillion in market capitalization — have valued climate risks to their businesses at almost $1 trillion (USD), risks which are likely to hit many companies within the next 5 years.

CDP (formerly the Carbon Disclosure Project) is the organisation which runs the global disclosure system for environmental information, and its new report is based on responses to its 2018 questionnaire from 6,937 companies, and includes a sub-sample of 500 of the world’s biggest global companies, 366 of which reported to CDP in 2018. The report analyses the risks and opportunities related to climate change in 2018 and does so in line with the recommendations from the Task Force on Climate-related Financial Disclosures which was 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 biggest takeaway from CDP’s latest report is the potential climate-related risks by the world’s biggest companies. Specifically, according to CDP, 215 of the companies in this 500-company sub-sample — which together represent $16.95 trillion in market cap — reported estimations of the “potential financial implications for a proportion of their reported risks” which CDP calculated to be just under a trillion dollars — around the $970 billion mark, to be specific.

On top of this, the report revealed that over half of these risks were reported as being “likely/very likely/virtually certain” and expected to materialise in the short- to medium-term — around 5 years, or earlier. Further, and part of the calculated trillion-dollar risk, is around $250 billion which is linked to asset impairments or write-offs, “stranded assets,” as a result of both transition and physical risks.

The report also revealed that over 80% of the world’s largest companies are expecting major climate impacts on their business — including extreme weather patterns, rising global temperatures, and increased pricing of greenhouse gas emissions.

“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.”

While the risks are great, the report also shows that potential opportunities are greater. CDP reports that 225 of the world’s 500 biggest companies reported climate-related opportunities worth over $2.1 trillion — the majority of which is expected to be driven by the potential increase in revenue due to demand for low-emission products and services.

Importantly, the potential average value of climate-related opportunities is almost 7 times the cost of achieving them. Put another way, the costs amount to around $311 billion, while the opportunities amount to around $2.1 trillion.