Business world gets fresh prod to prepare for physical climate risk

3 minute read

REUTERS/Carlos Barria

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  • IPCC report flags rising risks for physical assets
  • A 'wake up call' for financial system - EIB's Losenno
  • Current disclosure 'massively lacking' - Wellington

LONDON/BOSTON, Feb 28 (Reuters) - As investors and businesses increasingly pledge to cut their carbon emissions, scientists on Monday offered a fresh warning about the need to better understand and plan for the physical damage caused by global warming.

Rising sea levels, water and food scarcity, as well as the impacts of hurricanes, floods and drought are likely to become more frequent and severe, leaving companies and their investors exposed to mounting losses that are poorly understood.

A report from the Intergovernmental Panel on Climate Change (IPCC) issued a "dire warning" of the consequences of failing to cap global warming at 1.5 degrees Celsius above pre-industrial levels and adapting properly to the impacts of climate change.

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"It should be a wake up call for the financial system," said Cinzia Losenno, climate adaptation lead at the European Investment Bank, the lending arm of the European Union, which is targeting adaptation spend of 4 billion euros ($4.48 billion) a year by 2025.

"We're getting better at understanding the risks of investing in high carbon assets, the transition risk, but not so good in the financial system in understanding... the impact of climate risk on assets."

Ian Simm, founder and CEO at Impax Asset Management, said the "hard-hitting" report highlighted the scale of uncertainty facing companies and the need for more radical action to prepare.

ARMS AROUND THE DATA

Regulators around the globe are only beginning to lay out rules for how companies should disclose the impact of their operations on climate change, and the risks they could face. read more

An analysis in October of groups using the Task Force on Climate-Related Financial Disclosures framework, designed to ensure companies properly disclose climate risks, found many were still not reporting fully. read more

"On the whole disclosure is massively lacking," said Chris Goolgasian, director of climate research and portfolio manager on the Sustainable Investment Team at U.S. asset manager Wellington Management, which invests more than $1 trillion.

"Are some companies tackling it full on and doing a good job? Sure. Is the median company doing that? No. The median company is not disclosing enough for Wall Street to analyse all the risk factors and all of the plans to address them."

To help get a better grip on the data, Wellington has teamed up with the Woodwell Climate Research Center to push for companies to disclose the physical location of their assets and operations.

"Companies must prepare themselves for the impacts of climate change and show that they have the ability to adapt, be it through resilient supply chains or business models, efforts toward adaptation are now the minimum requirement for survival," said Nicolette Bartlett, Chief Impact Officer at climate data non-profit CDP.

Bartlett said the IPCC report had made the need to focus on getting to 1.5C "even more critical" and that failure to do so would make adaptation harder, calling for companies to publish five-year action plans that drive capital expenditure.

Oliver Johnson, Head of ESG at Climate Asset Management, which is focused on nature-based solutions such as sustainable forestry, said the report showed the need for companies, cities and countries to focus on building more resilient "green" infrastructure to increase the adaptive capacity of ecosystems.

"Investors that don't take climate physical risks into account potentially face disruptions including the increased risk of forest fires, reduced yields and higher insurance premiums to name a few," he said.

"As regulations around climate change disclosure increase, we believe those investors that are demonstrably managing these risks will be better placed to access capital."

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Reporting by Simon Jessop and Ross Kerber; Editing by Alex Richardson

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