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Weather hurt earnings of 15% of S&P 500 companies, disclosures show

Approximately 15% of companies in the S&P 500 index between April 2017 and April 2018 disclosed that weather events such as drought, cold snaps and excessive rainfall had impacted their earnings, S&P Global Ratings said in a report released June 11.

The report, which was prepared in collaboration with climate risk management specialist Resilience Economics, provides a snapshot in time of the extent to which changes in weather patterns and temperatures have hurt companies' bottom lines. But while 73 companies disclosed weather-related impacts during the financial year at issue, only 18 of those companies, or 4% of the S&P 500, quantified the effects of the weather events, which on average shifted earnings by about 6%, "The Effects of Weather Events on Corporate Earnings are Gathering Force" report said.

Investors have been pushing publicly traded companies to disclose how they are maneuvering to remain competitive as cultural expectations evolve and markets transition to a lower-carbon economy. One point of contention involves the extent to which climate change can materially impact a company's finances and whether the risks are big enough to warrant disclosing them in public financial filings with the U.S. Securities and Exchange Commission.

"In S&P Global Ratings' view, the effect of climate risks and severe weather events on corporate earnings is meaningful," the report said. "If left unmitigated, the financial impact could increase over time as climate change makes disruptive weather events more frequent and severe." The report acknowledged, however, that determining whether climate change caused a specific weather event can be difficult.

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As for how weather events can hurt companies, the report said droughts can hamper hydropower operations, excessive rainfall or sustained extreme cold temperatures can disrupt construction activities and outdoor events and damage crops, and mild winters and summers can reduce demand for seasonal retail products such as apparel.

Of the companies that disclosed weather-related impacts between April 2017 and April 2018, the majority of those announcements were made by CEOs in the U.S., and 87% of the disclosures occurred during quarterly earnings calls as opposed to through more formal methods of reporting, the report said.

The report said more companies may begin to disclose the physical risks and impacts of weather events as they implement the voluntary recommendations of the Task Force on Climate-Related Financial Disclosures, which included both physical and transitional risk factors. At least 275 companies have endorsed the task force's June 2017 recommendations.

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The increasing impact of climate on corporate earnings led to 43 changes in companies' ratings from July 2015 to August 2017, most of which were downgrades, the report said. "This is a significant number given the range of different risks that can have an impact on credit quality," the report said.

Another recent report commissioned by the National Association of Manufacturers found that the act of reporting climate policies to the CDP, formerly the Carbon Disclosure Project, had no clear material impact on more than 700 U.S. corporations' stock prices.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.