Our assessment of 1300 global companies shows a revenue risk increase of up to 90% by 2050 as climate change increases extreme weather impacts.
The U.S. Security and Exchange Commission (SEC)’s new proposed rules that would require companies to disclose their climate risk, including the impacts of storms, drought and heat caused by global warming. It sends a strong signal to all companies that it’s time to take climate risk seriously.
Under the proposed SEC rules adopted on a 3-1 SEC vote, public companies would have to report on the risks of severe weather, climate change and fossil fuel transition. The SEC announcement is good news for companies already taking climate risk and reporting seriously, but not for those ignoring the risk, as we found in our own new analysis of 1,300 companies globally.
Revenue impacts due to climate change are set to increase by 90% by 2050 under the current greenhouse gas emissions trajectory.
Why does all of this matter? It turns out that a company’s understanding and action to protect against climate risk is a good indicator of a solid company, full stop. At XDI Systems we have just released an independent climate risk analysis of more than a thousand companies across eight financial indices including the S&P 500. It shows that many underestimate and under-report both the current and projected financial impacts of climate change to the productive asset base of the companies.
We also think it’s time for regulators to require companies to report on adaptation and resilience strategies.
Productivity Loss over time by financial index
U.S. companies’ operational facilities are increasingly at risk from extreme weather events. Coupled with business continuity impacts, revenue impacts are set to increase by 90% by 2050 under the current greenhouse gas emissions trajectory. We carried out an asset-by-asset analysis of 2.1 million properties owned or leased by more than a thousand companies. The analysis suggests that financial impacts will increase multi-fold under business-as-usual climate change projections.
Many companies are already experiencing losses as a result of extreme weather caused by climate change such as heat, drought, flooding, fire and storm, all of which the world is seeing more of as temperatures increase.
The SEC rules are a positive step towards making climate risk reporting mandatory in the U.S. and I believe this will mean companies are more inclined to understand their climate risk and invest in resilience. Investing before extreme weather disasters is more effective than waiting for a costly crisis.
Understanding climate change risk is now business 101.
The analysis suggests that financial impacts will increase multi-fold under business-as-usual climate change projections.
It turns out that understanding and reporting climate risk is not just good governance. As a company that regularly carries out third-party climate risk assessments for large investors and funds, I know firsthand that most are now doing their own risk due diligence before deciding to invest. Many investors may know at least as much, if not more, about your climate risk than you do.
XDI’s benchmark series is our contribution to global efforts to stabilize the classification, measurement and disclosure of climate risk. This is something that is much needed for businesses and investors to have a consistent basis to compare risk levels and preparedness. We believe globally consistent assessment and reporting metrics, and independent checks of voluntary assessments, are the only way for companies, investors and regulators to ensure comparability and accuracy. We also think it’s time for regulators to require companies to report on adaptation and resilience strategies.
The SEC’s proposed rules are likely to face steep, if not insurmountable, opposition from Republicans and that’s a real problem for the country’s companies. The world is moving fast to mandate climate risk reporting and assisting companies to do that well in line with global best practices not only makes good climate change sense but good economic sense. Improving readiness for the climate change impacts we are now seeing, and that we know we will see in the future, is now business 101.