Study finds that financial sector companies see the most potential revenue (US$1.2T) from sustainable products & services, while also being exposed to almost 80% of all financial risk value.
A group of the world’s largest companies — representing nearly US$17 trillion in market capitalization — have valued the climate risks to their businesses at almost $1 trillion, with many likely to hit within the next five years. This is revealed in a groundbreaking new report published today by CDP, which runs the global disclosure system for environmental information.
Over 80 percent see major climate impacts, including extreme weather patterns, rising global temperatures and increased pricing of greenhouse gas emissions. Around $500 billion of costs are rated as likely to virtually certain, with higher operating costs linked to legal and policy changes making up a significant risk.
Companies report potential $250 billion in losses due to stranded assets — these include fossil fuel assets that may no longer offer economic returns as a result of market shifts associated with the transition to a low-carbon economy, or companies that are significantly exposed to the physical impacts of climate change.
But the group also reported cumulative gains from realising business opportunities related to climate change at $2.1 trillion, with the majority on track as almost certain. These opportunities include increased revenue through demand for low-emissions products and services (such as electric vehicles), shifting consumer preferences and increased capital availability as financial institutions increasingly favor low-emissions producers.
On average, the potential value of climate-related opportunities is almost 7 times the cost of achieving them ($311B in costs, $2.1 trillion in opportunities). Given this, investors and stakeholders could expect to see a significant shift in climate-friendly products and services from the world’s largest companies.
Companies in the financial sector see the most potential revenue (US$1.2 trillion) from potential new sustainable products & services, followed by manufacturing ($338 billion), services ($149 billion), fossil fuels ($141 billion) and the food, beverage & agriculture industries ($106 billion). The vast majority of risks are also concentrated in the financial services industry — the sector reported almost 80 percent of all financial risk value[^1].
Nicolette Bartlett, Director of Climate Change at CDP, commented, “The goalposts for climate action have never been clearer for companies. Our analysis shows that there are a multitude of risks posed by climate change, including impaired assets, market changes and physical damages from climate impact, as well as tangible impacts to business bottom lines.
Following the recommendations of the most recent IPCC report, CDP asserts that our collective response to climate change is more urgent than ever, and it is clear that corporate action cannot be delayed — so, it is hugely encouraging that companies are reporting that the potential value of climate opportunities far outweigh the costs of investing in the transition.
However, while CDP research shows that financial organizations see the most opportunities and value at risk from climate change, a more concerning story may sit behind this statistic. It is likely that this growing awareness is partly caused by the increased scrutiny of regulators and stakeholders, and potential gaps in awareness and disclosure elsewhere in the economy present real risks. Regulators and investors should take note, and all companies from all industries need to step up.
Other key findings from the report include:
Only half of the fossil fuel companies in the Global 500 provided any financial figures for the substantive risks and opportunities identified
Power companies represent one of the few industries where the costs to manage risks, or realize opportunities, outweigh their impact on the business. Disclosures centered around the substantial costs associated with updating existing power plant infrastructure.
The full report covers 6,937 companies who reported data to CDP in 2018, including a sample based on the 500 biggest global companies by market cap, 366 of which reported to CDP. It analyzes the risks and opportunities related to climate change reported by companies in 2018 in line with the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD).
CDP has committed to align its information requests with the TCFD, which will help drive the adoption of TCFD recommendations by reporting companies.
View the executive summary of the report here.
[^1]: Financial Services companies represent the largest proportion of the responding companies from the Global 500 sample set