The Bottom Line: Climate Will Crush Company Profits

June 5, 2019

New York Times:

Many of the world’s biggest companies, from Silicon Valley tech firms to large European banks, are bracing for the prospect that climate change could substantially affect their bottom lines within the next five years, according to a new analysis of corporate disclosures.

Under pressure from shareholders and regulators, companies are increasingly disclosing the specific financial impacts they could face as the planet warms, such as extreme weather that could disrupt their supply chains or stricter climate regulations that could hurt the value of coal, oil and gas investments. Early estimates suggest that trillions of dollars may ultimately be at stake.

Even so, analysts warn that many companies are still lagging in accounting for all of the plausible financial risks from global warming.

“The numbers that we’re seeing are already huge, but it’s clear that this is just the tip of the iceberg,” said Bruno Sarda, the North America president for CDP, an international nonprofit that wrote the new report and works with companies around the world to publicly disclose the risks and opportunities that climate change could create for their businesses.

Many firms are bracing for direct impacts. Hitachi Ltd., a Japanese manufacturer, said that increased rainfall and flooding in Southeast Asia had the potential to knock out suppliers and that it was taking defensive measures as a result. Banco Santander Brasil, a large Brazilian bank, said increasingly severe droughts in the region might hurt the ability of borrowers to repay loans. Google’s parent company, Alphabet, Inc., noted that rising temperatures could increase the cost of cooling its energy-hungry data centers.

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. A recent analysis published in the journal Nature Climate Change warned that companies are reporting on these risks only “sporadically and inconsistently” and often take a narrow view of the dangers that may lie ahead.

Pacific Gas and Electric, California’s largest electric utility, offers a case study in how some corporate disclosures can be far from perfect. 

In its report to CDP last year, PG&E said that the rise in wildfire risk in the American West, partly driven by global warming, could create significant financial costs if the utility were held liable for the fires. PG&E estimated the “potential financial impact” from wildfires at around $2.5 billion, based on claims that the utility had paid out in 2017.

However, that turned out to be overly optimistic: This past January, PG&E filed for bankruptcy protection and said it now faced up to $30 billion in fire liabilities shortly after its power lines sparked what became California’s deadliest wildfire yet last fall.-

However, that turned out to be overly optimistic: This past January, PG&E filed for bankruptcy protection and said it now faced up to $30 billion in fire liabilities shortly after its power lines sparked what became California’s deadliest wildfire yet last fall.

The report comes as financial regulators have expressed growing concern that markets aren’t yet fully pricing in the potential financial consequences of climate change. Last month, the European Central Bank warned that a spate of severe weather that caused major losses for insurers, or an unexpectedly rapid shift by investors away from fossil fuels could hit the balance sheets of unprepared banks and potentially destabilize the financial system.

“Climate change-related risks have the potential to become systemic for the euro area,” the bank said, “in particular if markets are not pricing the risks correctly.”

The Hill:

Officials from more than 75 companies will meet with Congress Wednesday to call for a “meaningful” national price on carbon emissions, a sustainable investment group behind the effort told Roll Call.

Ceres’ vice president of government relations told the outlet in an interview that a significant portion of the private sector supports a national carbon price of some kind.

“There’s an overwhelming consensus about carbon pricing needing to be part of the solution,” Anne Kelly said.

The message from the corporate suite to congressional offices is clear, she said: “We need your help in the form of a price on carbon and, basically, we’ve got your back.”

Pricing carbon as a way to tackle climate change has grown in popularity and enjoyed some bipartisan support, but still has staunch opposition.

“A carbon tax is not the solution to address our environmental challenges,” Rep. Kevin Brady (Texas), the top Republican on the Ways and Means Committee, said at a panel hearing last week.

8 Responses to “The Bottom Line: Climate Will Crush Company Profits”

  1. Brent Jensen-Schmidt Says:

    An escalating carbon tax can save the world, excuses will kill it. It is impossible to proof read your own words Greenperson, trust me.

    • Terry Donte Says:

      Why do you believe that taxes will save the world? The major emitters of carbon are India and China with Africa and the rest of Asia right behind. We could raise carbon taxes to 1000 dollars a ton and that would do zero to fix the rest of the world which is trying to raise its living standards to ours. Nobody wants to live in a third world hell hole including the people who currently live in one. They want the goods things like air conditioning, nice homes, heating and a car, throw in schools , jobs to pay for things and CO2 is not going down anytime soon.

      • Brent Jensen-Schmidt Says:

        Well the billions of people in the developing countries may be emitting slightly more than the millions of people in the west. The per capita difference is of course ridiculous. So the perennial excuse that all THOSE people are the problem and should reduce their minimal emissions so we can maintain our (profligate) lifestyle. A disgusting excuse.
        A carbon tax will start to address the problem of half the worlds emissions. It need not affect the economy, worked fine in Oz before the establishment killed it. Advances would be available to the developing world also. One planet, solutions to be sought, problems to be overcome. Got something better to do with your time?

  2. rsmurf Says:

    Most likely the only thing that will make the USA take action (falling profits).

  3. Terry Donte Says:

    The only thing which could affect profits is carbon taxes. California is busy crushing profits with carbon taxes on gas and on cement plants which most likely will crash California’s economy sooner or later, long before the oceans rise 3 inches in the next 100 years which is the NOAA trend on land not moving up or down.

  4. Terry Donte Says:

    I was an auditor in a prior time and audited large companies and small, Hundreds of millions of dollars in audits, some of which wound up in federal courts as both civil and criminal matters. When someone says “may” that is simply BS. May covers every sin known to mankind with some left over for aliens should they exist. Either the companies have exposure to climate change that is significant or they do not. What the mob does with laws and regulations often has zero to do with the facts. Companies respond to the mob as they exist in the culture of the mob. Climate change is occurring, none of the models have been verified on past climate change so they are essentially worthless in predicting future change except to say climate changes. The little ice age was colder than today, the medieval warm period was at least as warm as today, none of that change had anything to do with mans activities which leaves the sun as the changer of climate baring a giant meteor or a huge volcanic eruption. Current temperatures are not melting the world and the likelihood of it reaching the model claims are essentially zero.

  5. xraymike79 Says:

    It’s especially costly when there are no people to buy your products. Consigning humanity to a whole new and ever-worsening climate regime is a crime against humanity.

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