Major risk or rosy opportunity

Are companies ready for climate change?

In 2017 and 2018, extreme weather events swept the globe, destroying communities and bringing huge economic losses. Meanwhile, rapid technological shifts as a result of the transition to a low-carbon economy have made the financial sector sit-up and take note.

Increasingly, financial regulators and investors are focused on ensuring the private sector is ready for the risks and opportunities of climate change.

In 2018, some 6,707 of the 6,937 companies responding to CDP disclosed information on whether they were exposed to climate-related risks and opportunities. This analysis examines those responses, focusing in on two core samples - the full range of disclosing companies, and a smaller sample made up of the world's 500 biggest companies by market cap.

Companies are identifying both risks and opportunities

Almost half of all companies disclosing to CDP in 2018 identified risks and opportunities which could have a substantive impact on their business. Just 32% reported that they did not identify either risks or opportunities.

For most companies, the transition risks focused on the potential for policy and legal changes, including increased pricing on greenhouse gas emissions, regulation of existing products and services, and emissions reporting obligations.

Most companies are also only identifying potential physical and transition risks within their direct operations and are yet to explore those within their supply chain. This points to a narrow focus, and companies should take note of these wider dynamics and broaden their risk assessment practices if they are to remain profitable in the future.

The opportunities are bigger than the risks

In 2018, companies were directly asked to report on the potential financial impact figures of the risks and opportunities disclosed for the first time.

The wins far outweigh the costs of management

These findings align with what economists have been highlighting for over a decade now, that the potential negative impacts of climate change outweigh the costs to mitigate them, and that there are significant opportunities to be realized as part of the transition.

Given this, investors and stakeholders could expect to see a significant shift in climate-friendly products and services from the world's largest companies.