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US corporates brace for financial impact of climate change

US corporates are increasingly recognising the damaging effect climate change will have on them – not just financially but also the damage to their reputation among consumers and investors. Analysis by CDP (formerly the Carbon Disclosure Project – an environmental non-profit and investment research provider) shows that US businesses are ready for a low-carbon transition and are acknowledging the major climate-related risks they face, while also seeing opportunities.

Significant risks of unabated climate change

The report shows that climate-related events such as hurricanes, flooding, storm surges and sea level rise are all creating operational risks for US real estate companies and are translating into higher costs. At the same time, Californian companies are disclosing inherent benefits to their business from climate-related regulation, with business opportunities arising from changing consumer behaviour and the corporate reputation gains from addressing climate change risks. Droughts and falling water levels will damage the food industry, while fuel and energy regulation is also a top risk for many corporates. CDP states that “The US economy faces significant perils from unabated climate change, and more companies are reporting environmental risks, financial implications of these extreme weather events and how they go about seizing new opportunities.”

Ice cream industry at risk

Some of the highlights from CDP's analysis include:

  • 88 per cent of US real estate companies cited operational risks related to hurricanes, flooding, storm surges, sea level rise, which could translate into higher costs to businesses;
  • 2017 Atlantic hurricane season ranks as one of the costliest disaster years for the insurance industry. A record amount of $215bn, including a record uninsured loss roughly amounting to $120bn; insurance companies Allstate and American International Group are managing risk by adjusting pricing and terminating coverage in areas prone to natural disasters;
  • Californian companies reported in 2017 more opportunities from environmental regulation than companies headquartered in any other state, 81 percent of Californian companies disclosing inherent benefits to their business from climate-related regulation;
  • In 2017, over half of Californian companies pointed to corporate reputation and changing consumer behaviors as drivers of business opportunities, with 69 percent reporting either or both drivers in their responses to CDP; Alphabet, Google’s parent company recognized reputational benefits in the form of potential brand equity gains amounting to at least $133 million from addressing climate change risks;
  • In 2017, companies in the Southwest operating within the Colorado River Basin have reported more than 70 serious water risks to their operations and more than 70 percent of these risks were linked to expectations of higher operating costs and plant disruption. One of the world’s largest defense contractors Raytheon reported that 11-20 percent of their global revenue could be affected by water risk;
  • Climate presents a risk to the ice cream industry, which contributes more than $39bn to the national economy. Unilever’s dairy facility in the Western seaboard, producing brands such as Breyers, Ben & Jerrys, Klondike, and Good Humor, could likely see disruptions in production if water levels continues to drop in Lake Mead;
  • Ohio-based companies have consistently reported fuel and energy regulation as a top risk since 2015. American Electric Power with over five million customers across 11 states, including Texas, West Virginia, Virginia, Louisiana, and Kentucky, is one example of a company grappling with uncertainty around the regulatory direction of the U.S.

Call for bold action

The CDP analysis is a follow-up to the ‘US State by State 2014’ report surveying similar companies, including Google, McDonald’s, United Airlines, John Deere, Goodyear, eBay and Sears. It presents findings from the past four years about US corporate reactions to the impacts of climate change upon business in four US regions, with emphasis on Texas and Florida, Arizona and Colorado, California, Ohio, and Illinois. The report also notes that growth in the wind and solar energy sector is driving investments in the US renewable energy industry of more than $40 billion in 2017 while cumulative US private investment in renewable energy could reach $1 trillion in the near future.

It adds: “Companies, cities, and states are calling upon the government to take bold action at the United Nations Climate Change Conference of the Parties (COP 24), which is currently being held in Poland. The conference aims to deliver on the Paris climate agreement to put the world on track to a low-carbon, sustainable future while keeping in global temperature to 1.5 degrees Celsius.”

CTMfile take: The tide could finally be turning when it comes to corporate and financial sector attitudes to climate change. Realisation that climate change will affect the bottom line - and provide opportunities for forward-thinkers - will shift corporate priorities. Read more in CDP's report here: Bracing for the impacts of climate change  

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