A 2003 report, Carbon Finance and the Global Equity Markets, identifies changing climate due to rising global average temperature as one of the factors that will influence a company's competitiveness and profitability
Global warming is set to change the investment climate in the corporate world. A 2003 report, Carbon Finance and the Global Equity Markets, identifies changing climate due to rising global average temperature as one of the factors that will influence a company's competitiveness and profitability. Investors are beginning to revalue companies depending on their exposure to climate change risk, according to the report. Companies that heavily emit greenhouse gases (ghgs), or are most exposed to natural disasters, are at maximum risk of losing investor value.
Based on a survey of top 500 companies in the world (measured in terms of market capitalisation), the report was commissioned by 35 institutional investors including insurance companies and pension funds. It analyses growing pressures on companies to reduce ghg emissions and identifies risks -- on a sector-by-sector basis -- that investors should consider.
Industries with high emissions can suffer as much as 40 per cent in value. Those implementing policies to reduce risk arising due to climate change will have a competitive advantage, boosting their share prices. The report advises early action on averting climate change impacts. For example, rail firms are marketing their services on the strength of their low carbon emissions characteristics; companies like Unilever and Sainsbury have set emission reduction targets; the telecom sector is now pursuing teleconferencing as a way to reduce vehicle transport and emissions.
In the survey, more than 80 per cent of companies contacted recognise climate change as a serious issue. Some instances of financial risk are: the us semiconductor industry, from potential disruptions to crucial components from Taiwan (where weather induced water shortages are jeopardising chip manufacture); and business interruptions due to hurricanes in the Gulf of Mexico, that cause temporary but significant production losses for oil and gas production companies (see table: Most Impact).
Some sectors immediately affected by climate change*
|Food Manufacturing and Retailing
|Losses to producers from drought; increased irrigation costs; greater risk of insect infestation and plant disease; decline in food production; increased food prices; opportunities for carbon sequestration in agricultural sector
|Higher maintenance costs; changing seasonal demand for electricity; more emphasis on renewable/clean power
|Integrated Oil and Gas
|Business interruption due to storm activity, especially in the Gulf of Mexico; fossil fuel use decline in power production; opportunities in natural gas sector, and in sequestration
|Paper and Forest Products
|Higher risk from fire; pest problems; Carbon sequestration opportunity in forestry and biomass-based power production
|Demand for coal transportation may decline; opportunities in clean fuel market and less GHG-intense transportation forms
|Insurance and Reinsurance
|Business interruption becoming unpredictable; greater loss in case of calamities due to increase in population and infrastructure densities; enhanced risk to human health
|*Increase in operating costs due to higher energy or fuel prices and risk due to GHG emissions regulations will have a bearing on almost every sector
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