Guide for companies and investors on management of climate impacts

June 21st, 2012 by Ceres

(Please click on the report cover to go to the Ceres download page)

Calvert Investments, Ceres and Oxfam America have released a guide, “Physical Risks from Climate Change” for companies to improve their analysis and management of the risks that climate change poses to their operations and supply chains.

The groups also urged better transparency and disclosure from companies on the threats they face because of increasingly frequent and severe climate impacts.

“As a long-term investor, it’s important to know how companies are factoring the far-reaching impacts of climate change into their planning and risk management,” said Maryland State Treasurer Nancy K. Kopp, who chairs the $36 billion Maryland State Employees and Teachers Pension Fund and spoke at a news conference announcing the disclosure guide.

“This report is an invaluable tool on climate risk disclosure companies should be providing, especially in regard to physical risks in operations and supply chains.”

Physical Risks from Climate Change: A guide for companies and investors on disclosure and management of climate impacts,” focuses on companies in the agriculture, food and beverage, apparel, electric power, insurance, mining, oil and gas, and tourism sectors, all of which are highly vulnerable to climate impacts.

The guide provides detailed checklists that companies should use to assess, manage and disclose physical risks they face from climate change.

“Climate change is already causing costly physical impacts for communities and the companies and investors that depend on them,” said Raymond C. Offenheiser, president of relief and development organization Oxfam America.

“As the US hurricane season looms, companies must begin to understand, plan for and disclose to investors the ways in which climate change is likely to affect their bottom lines.”

The impacts of climate change on companies’ supply chains, natural resources, operations and key infrastructure are expected to worsen as a result of increasing temperatures, changing weather pat­terns, and more frequent and intense droughts, floods and storms. The year 2011 set records for economic losses and insured losses caused by natural catastrophes, with extreme weather events accounting for 90% of the disasters and 8 of the 10 most costly.

Among the specific, physical impacts that U.S. businesses felt from last year’s extreme weather events:

  • More than 160 companies in Thailand’s textile industry were harmed by the 2011 floods, stopping about a quarter of the country’s garment production, much of it for U.S. companies,
  • Electric power company Constellation Energy experienced reduced quarterly earnings of about $.0.16 per share due to the record-setting 2011 heat wave in Texas that forced it to buy incremental power at peak prices.
  • Last year’s drought in Texas also caused more than $2 billion of cotton losses, raising prices and limiting supplies for apparel companies that source from the state.
  • U.S. property insurers experienced some $32 billion in insured damage losses last year, second only to losses in 2005 when Hurricane Katrina hit the Gulf Coast. Much of last year’s damage occurred away from the coast, including hurricane-driven storms in Vermont, wildfires in Texas and hailstorms in Arizona.

Mindy Lubber, president of Ceres and director of the $10 trillion Investor Network on Climate Risk (INCR), said, “virtually every sector faces climate risks and opportunities, and investors can’t afford for those risks to remain opaque. The guidelines in this report shed light on how businesses should analyze and quantify physical risks from climate change so that investors can make informed decisions.”

“This report demonstrates the tangible risks of severe climate events to companies across industries as never before”, said Bennett Freeman, senior vice president, sustainability research and policy at Calvert Investments.

“Companies that do not address climate risk are sharing that risk with their investors, while investors will gain value from companies with the foresight to adapt.”

The guide also provides investors with advice on the types of information they should seek and expect of companies in order to manage portfolio risks related to climate change impacts.

It builds on the U.S. Securities and Exchange Commission’s (SEC’s) formal guidance issued in 2010 on how US companies should disclose climate change risks in their financial filings.

Dozens of investors, many of them part of the Ceres-led Investor Network on Climate Risk, had petitioned the SEC requesting the climate disclosure guidance.


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