Wednesday, May 21, 2014

Factoring Climate Risks for Business

The business community must understand the benefits of engaging climate change and the costs of failing to act. The sooner we factor climate risks the lower the ultimate price tag.

Businesses that are reluctant to assume the costs of mitigation and adaptation need to appreciate the costs associated with delays. According to some estimates, in the last two years alone delays in engaging climate change have cost us $8 trillion. The longer we wait the higher the price tag. BSR says that climate change will cost us $4 trillion by 2030 while the IEA estimates that we can save $115 trillion in fuel costs by 2050.

According to a CDP report some of the world's biggest brands are coming to terms with climate change related risks and costs.

These climate change risks and costs are a current concern and not just part of some distant future. Three years ago 26% of S&P 500 companies said that climate change poses a risk within the next five years, the most recent CDP study saw that number jump to almost half (45%). These costs include damage to facilities, reduced product demand, lost productivity and write-offs.

Half of S&P 500 companies said that these risks range from “more likely than not” to “virtually certain” which is up from slightly more than a third (34 %) three years ago.

Here is a brief sampling of some of the corporate risks and costs associated with climate change:
  • Dr. Pepper Snapple Group is concerned about extreme weather and the cost of water due to growing scarcity. They have assigned a price tag of $2.5 billion for their sales at risk.
  • The Gap expects higher costs for cotton due to climate change related drought impacts on precipitation in China.
  • Sempra Energy has indicated that wildfires in San Diego have accrued costs exceeding its $1.1 billion of liability insurance coverage.
  • Union Pacific reports a decrease in freight revenue due to droughts in 2012.
  • HP describes a decline in revenue of 7 percent due to the 2011 floods in Thailand.&
  • Consolidated Edison has indicated that the costs associated with Hurricane Sandy are close to half a billion dollars ($431 million).

© 2014, Richard Matthews. All rights reserved.

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