Costs and opportunities of the climate crisis for the financial markets

Over 200 of the world’s biggest companies predict that climate change will have a negative impact on their business, potentially costing around a trillion dollars in total.
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The climate crisis affecting the planet is not just a worry for scientists, ecologists or young activists: it is also a fear for big business. Global warming signifies a structural risk for the whole financial system and avoiding it will lead to us living on a planet in better shape than it is now. This is why investors are demanding that companies provide more information on how the different climate scenarios will affect the activities of their companies; they want rigorous information so they can take better investment decisions.

In this respect, the non-profit organization CDP, reputed institution in the financial community, is urging big companies to come clean on the issue. It has just published a study on the impact the climate crisis could have on the business of large companies. CDP was able to put together the report from data reported by 6,937 entities worldwide in 2018. It draws negative conclusions, but also flags up many opportunities for industry and, most importantly, the planet.


Climate change means a bill of nearly 1 trillion dollars

According to the CDP report, climate change could cost the world’s biggest listed companies up to 1 trillion dollars over the next 5 years, and this as many companies continue to underestimate the risks facing them. This cost has been estimated based on factors such as increasing temperatures, unforeseeable changes in the weather and greenhouse gas emission prices.

Of this trillion dollars, around 500 billion will be operational costs due to legal and political changes, while a further 250 billion derive from so-called “stranded assets”, i.e. assets that no longer form part of the productive model of businesses: fossil fuels it will soon be necessary to retire due to market changes, and assets exposed to deterioration by the effects of the climate crisis.


Sustainability, a much more profitable opportunity

But there are interesting and hopeful opportunities emerging from the climate crisis facing the planet. The report calculates cumulative gains worth 2.1 trillion dollars from new financial alternatives: the market will demand low-emission products and services in accordance with the new energy paradigm, such as electric vehicles, and we consumers will change our preferences toward climate-respecting options.

Additionally, the costs of launching these opportunities would be significantly less than the total value of the business, nearly 7 times less than their potential worth.

For the paradigm change to happen, and companies to accelerate in rethinking their business models in line with the planet’s sustainable needs, it is essential that governments implement their national plans.

Companies should be legally compelled to publish data on how their activities affect the environment, which would also provide the markets with more and better information. If we properly manage the risks and opportunities derived from the climate crisis, we will leave the planet in a better state than it is now.


Fuente: Cinco Días, Expansión, Reuters, La Vanguardia, Wired, CDP