Large-scale academic study finds that companies are underestimating climate change risks
- Published: Tuesday, 11 December 2018 09:35
A new study published in Nature Climate Change analyzing the climate risk disclosures of 1,630 companies found that many companies are failing to accurately characterize their climate change risk or adequately prepare for its physical impacts.
The study, by Conservation International scientists Allie Goldstein, David Hole and Will Turner, and CDP Senior Manager Jillian Gladstone, was based on responses to CDP's annual climate change questionnaire, which asks companies to report on climate risk management strategies.
The study also analyzed the companies' stated adaptation strategies – making it the largest private sector adaptation study to date – and found that despite evidence that climate change will have wide-ranging impacts for businesses, most companies have focused their adaptation strategies on a small set of impacts to direct operations, not taking into account supply chain, customer, employee, and wider societal impacts.
The study's findings and recommendations include:
- While 83 percent of the companies surveyed disclosed that they faced physical risks from climate change, only 21 percent quantified these risks in financial terms. As a result, the 1,630 companies, representing 69 percent of global market capitalization, are collectively underreporting climate risks to investors by at least 100 times.
- The paper finds that while many companies are trying to incorporate climate change into their risk management practices, five key 'blind spots' are preventing businesses from adequately preparing for its impacts.
- To address risks beyond direct operations and across larger geographic areas, the authors recommend that companies give greater consideration to ecosystem-based adaptation strategies such as sustainable agriculture, watershed protection, and reforestation.
- Finally, the paper recommends that companies adopt the 2017 Task Force on Climate-related Financial Disclosures (TCFD) recommendations which urge companies to report on the financial implications of climate change to business.
"The mismatch we're seeing here between what climate science tells us to expect and what companies are preparing for shows that there is clearly a large and underappreciated climate risk embedded in companies' strategies and assets," said Will Turner, Senior Vice President, Global Strategies, Conservation International.
"Many companies are trying to factor climate change into their risk management practices, but we see significant blind spots – meaning they may be doing too little, too late to prepare for these risks," said Allie Goldstein, Scientist at Conservation International. "We urge companies to consider nature and its services, which contribute US$125-145 trillion to the economy annually. Nature is the biggest asset manager of all, and the largest untapped resource for building resilience to climate change impacts."
"This new research shows that while many companies are already investing in robust climate adaptation strategies, others have struggled with gaps in their awareness of climate risks – leaving them potentially unable to prepare for a low-carbon future and take advantage of opportunities. To remedy this, in 2018 CDP has aligned its reporting with the TCFD recommendations, meaning that companies can more clearly communicate their risks and management approaches to their investors and customers," said Jillian Gladstone, Senior Manager, CDP.
Read the paper ‘The private sector’s climate change risk and adaptation blind spots’.