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Global firms see $1 trillion climate change risk, $2.1 trillion potential gains

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Global firms see $1 trillion climate change risk, $2.1 trillion potential gains

While the world's largest companies are expecting to take an almost $1 trillion hit from risks related to climate change, they also see business opportunities worth double that amount from the transition to a low-carbon economy, according to a report released June 4.

However, the report's authors said companies may not be taking a global view of the risks posed by climate change in the coming years.

The survey by the CDP, a nonprofit formerly known as the Carbon Disclosure Project that provides climate change data for investors, shows that 215 of the world's largest companies see the financial impact of climate change to their businesses of more than $970 billion. That is due to increased operating costs, asset write-offs, policy changes and reduced demand as consumers shift toward more climate-friendly goods and services such as electric cars.

More than 80% of them believe that extreme weather, rising global temperatures and a rise in the price of emissions will have an impact of their business, with about $500 billion of the costs "likely to virtually certain" to happen mainly due to legal and policy changes.

The companies, representing almost $17 trillion in market capitalization, expect to write off $250 billion in assets.

'Rosy' view

The survey, which includes responses from the likes of Apple Inc. and Nestlé SA as well as financial services firms such as JPMorgan Chase & Co., HSBC Holdings PLC, Banco Santander SA and Axa, analyzes risk based on the guidelines of the G-20's voluntary disclosure framework, the Task Force on Climate-related Financial Disclosures, or TCFD, which is set to publish its second status report on June 5. It includes data from nearly 7,000 companies and takes a close look at the world's 500 biggest companies by market capitalization.

However, the report found that the biggest companies see more opportunities than risks as changing consumer needs, demand for climate-friendly products and services, and an increase in capital pools as financial institutions lend more readily to companies that produce less emissions. Around 225 of the companies surveyed provided potential financial impact figures. They see opportunities totaling $2.1 trillion and are almost certain those will occur.

"They are seeing the opportunities as being very rosy in most sectors apart from power and that they can manage these risks," report author Nicolette Bartlett, director of climate change at CDP, said in an interview. "But I would caution some companies [that] they could be taking too narrow a view."

She said companies may not be taking into account some of the technological changes and were not looking enough at the physical risks, which include storms, heat wave and droughts. U.S. companies, in particular, could be underestimating the risks from extreme weather given the spate of wildfires and hurricanes in the last two years, she said.

Financial sector

The financial sector is forecasting the most in potential revenue from climate change at $1.2 trillion. While the sector is used to making risk assessments, financial institutions are not taking a broad enough approach to climate change and were looking at the impact on their direct business, not on the risks their customers may pose in the future.

The report comes as financial regulators are becoming increasingly concerned that banks could be left with stranded or worthless assets because certain industries they finance may become obsolete.

With regards to the fossil fuel business, she said that only a small group of companies in this sector had provided data more on opportunities than risks from climate change, raising questions as to how they were going to manage risk as the global economy decreases its dependence on coal and gas.

About half of the total 6,937 companies surveyed said they did not see a "substantive" opportunity or risk from climate change, Bartlett said.

"I was surprised by that because I could see that from some sectors at this point in time that may be true but for such a large group of companies they are certainly missing things," she said.