Underestimating Climate Change Cheats Investors
Ignoring the long-term risks is easy, but refusing to face reality will only lead to tragedy for financial markets.
Drought isn’t going to help anyone’s productivity.
Photographer: Brendon Thorne/Bloomberg
As the effects of climate change unfold, its impact on business will grow more severe: altered rain patterns will affect agriculture, floods will disrupt supply lines, heat waves will prevent employees from working. If markets are to work well, investors need to know about these consequences, and the number of companies that voluntarily disclose their estimates of climate-linked risks has risen markedly over the past 15 years. They now account for around 69 percent of market capitalization, and such disclosure could soon be mandatory in many nations.
Of course, information only helps if it’s accurate. A comprehensive new study has assessed the plausibility of these corporate disclosures, comparing them to the best scientific and economic estimates of the likely costs of adjusting to climate change. The good news: Every year, more businesses start taking climate risks more seriously. However, current reporting also has serious blind spots that could leave investors uninformed and exposed.