Drought, Hurricane Bigger Threat to World’s Top Companies

Photographer: Asit Kumar/AFP via Getty Images
An Indian man carries water as he walks on a dry pond on the outskirts of eastern Bhubaneswar on April 28, 2014.

Drought, hurricanes and rising seas are becoming more significant threats to the world’s biggest companies and the risk is accelerating, according to the Carbon Disclosure Project.

Companies planning for various threats related to climate change say they’re grappling now with about 45 percent of the potential risks, or will be within five years, according to a report issued today by the London-based non-profit group. That’s up from 2011, when members of the Standard and Poor’s 500 Index expected 26 percent of the potential risks to affect them within five years.

The results show that climate change is having a measurable impact on business operations, and that many companies expect it to increase costs or hinder sales.

“Significant costs are already being incurred,” Tom Carnac, president of CDP North America, said in a phone interview yesterday. “It’s not just about making plans for the future, it’s about having to change what they do today.”

About 60 companies disclosed risks resulting from the planet’s rapidly changing environment. These included buildings destroyed by hurricanes, rising costs for raw materials, increasing insurance premium, slowing demand for cold-weather clothing and higher winter heating expenses.

Hewlett-Packard Co. (HPQ) said sales slipped as much as 7 percent after floods in Thailand in 2011 led to a shortage in disc-drive components.

Waste Management Inc. said both flooding and drought affect the rate of organic decay at landfills, driving up the cost of collecting landfill gas.

Operational Threats

The companies said that 68 percent of the potential risks would directly affect their operations, up from 51 percent in 2011. About 22 percent of the threats were to their supply chains and nine percent would impact clients.

The report highlighted how different companies’ operations are intertwined. For example, revenue at Union Pacific Corp. (UNP), the largest U.S. railroad, slowed in 2012 as the worst drought in more than 50 years drove down corn shipments by 11 percent.

“This is a great example of how our economy has become so complicated, how a change in agricultural yield affects the revenue achieved by a railroad,” Carnac said.

Union Pacific is reducing emissions by improving fuel efficiency, using more locomotives and improving the aerodynamics of train cars, Tom Lange, a company spokesman, said yesterday.

“We put a lot of energy into how we get better fuel efficiency,” Lange said. “It’s about finding the base hits of fuel technology -- there aren’t any home runs. We’re trying to hit a bunch of singles, add a couple percentage points here, a couple percentage points there.”

The report was funded in part by Bloomberg Philanthropies, formed by Michael Bloomberg, majority owner of Bloomberg LP.

To contact the reporter on this story: Justin Doom in New York at jdoom1@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net Will Wade, Carlos Caminada

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