A new report from three institutional investment companies - Henderson Global Investors, Insight Investment, and the Universities Superannuation Scheme – maintains that companies and their investors are not properly accounting for the impact of climate change on their investment decisions.
The report, which also had input from Acclimatise, a specialist risk management consultancy, is entitled ‘Managing the Unavoidable: investment implications of a changing climate” and is published alongside four sector specific reports covering oil and gas, UK commercial property, UK energy generation and the UK water sector. The reports can be downloaded from here.
The report points out that concern is primarily directed towards extreme weather, such as storms or floods, rather than on incremental changes, such as temperature, which can impact facilities management and energy efficiency. Seb Beloe, Head of SRI Research at Henderson Global Investors, commented; “The research underpinning this report suggests that we as investors need to pay much greater attention to how climate change/weather affects our investment decisions. This will require paying attention to how climate change adaptation will affect company-specific business models, value drivers, strategy, governance, cash flows and assets”.
Among the Key findings of the report:
Companies are putting more effort into how to address specific one-off climate events than in adapting for long-term change.
Risk assessment processes are weak, particularly in respect of incremental changes and indirect impacts.
Companies are more concerned about risks than opportunities. The emphasis is on the fact that those who are prepared have a potential business opportunity over those who are not.
Public policy inconsistencies are an obstacle. Examples cited are the differences in time horizons in looking ahead and also on-going issues around UK planning regulations.
The report makes several recommendations for investors, primarily around building climate change into decisions and ensuring companies are giving it due weight. It also advocates investors getting more involved in public policy debates around adaptation.
The report is based on an examination of specific industry sectors but is applicable across most of the commercial world. To some extent it reflects research from The Green IT Report a year or so ago which reached similar conclusions. Not so much about adaptation, but that the impact of climate change will not just be through one-off, large-scale, dramatic events directly hitting business facilities. There are potentially a variety of impacts and knock-on effects from climate change events far and wide. Examples included power shortages and blackouts, telecoms failures, medical epidemics leading to resource shortages, inability to get to work or travel on business, and the impact these would have on suppliers, distributors and resellers. It may not just be from one event, but from a combination of events up and down the supply chain.
Whichever way you look at it, businesses are currently ill-prepared for climate change, probably waiting until it’s too late before taking truly effective action. But clearly there are opportunities for ICT companies to help by creating more resilient supply chain systems, flexible transport/logistics solutions, etc and also providing the monitoring systems to allow companies to adapt when things start going wrong. It’s an area of green IT that will become increasingly important.