Corporations and Climate Change
Businesses across different sectors have been approaching climate change in a range of ways, from indifference to aggressive planning. Studies are now showing that climate change will affect some sectors profoundly, including: agriculture, fisheries, forestry, health care, insurance, real estate, tourism, and water.
Here's a small sampling of how climate change is having and will continue to have an impact on businesses and the economy:
- Insurance loss: Those monitoring the fallout from Hurricane Katrina realize that insurance loss related to extreme weather is devastating. But Katrina is not a lone example. There are four times as many weather-related natural disasters as there were 40 years ago, causing 11 times the insurance losses ($10 billion per year). According to Munich Re, natural disasters caused $55 billion in damage in 2002 alone.
- Drought: A drought in 2002 cost farmers and businesses in Australia—the world’s second-largest wheat exporter—$3.8 billion, reduced winter crop production by 40%, and increased food prices 1.4% in the final 3 months of the year. Drought in 2002 in the western US and Canada caused hydroelectric output to fall as much as 15% and cut grain transportation revenues by 13% at CN, a large rail firm. [source: INCR]
- Water Shortages: A study from Ceres found that the water industry could face $47 billion in extra costs by 2050. [source: INCR]
- Cost of Compliance With Regulations: Businesses working internationally will have to comply with the Kyoto Protocol. Although the U.S. did not sign the agreement, state legislators in California, New Hampshire, and Massachusetts are now imposing tougher standards. Many analysts believe that federal standards will be passed in the coming years, so businesses will not be able to ignore climate change; in fact, it will be a major factor in their bottom lines as they are required to pay for their carbon loads.
- Loss of Market Share to New Technologies: Many companies and investors recognize that positive and proactive measures to address climate change can reap significant benefits for shareholders. Companies with clean technologies or approaches may seize new markets or market share.
- Loss of Competitive Edge: More sustainable companies earn between 1.5% and 2.4% more than competitors. In certain high-risk sectors, including chemicals and petroleum, those sustainable companies gained 5% and greater earnings over competitors . Electric utilities with above-average environmental management earned 30% greater shareholder returns over three years than below-average companies.
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