Business and Financial Implications of Climate Change

This chapter draws attention to the fact that, as temperatures and sea levels rise and extreme weather events become more frequent and intense, climate change has begun to impact businesses and investments in increasingly diverse ways. Science is also making it possible to attribute these events to climate change and to predict the timing and severity of future events with greater precision and confidence. The magnitude of financial impacts from climate extremes is already becoming significant and much larger damages are on the way. Based on this background, the chapter introduces readers to the many implications of climate change for business and investment, ranging from the direct physical impacts of higher temperatures, sea-level rise, and more intense storms to more indirect risks and opportunities resulting from climate policies, litigation, and good and bad reputational benefits/damages. The chapter highlights new business opportunities for clean energy, climate-resilient infrastructure, and new means of transport requiring investments in the many trillions of dollars but cautions that the transformation of the global energy system is an enormous challenge that will not be accomplished quickly. The chapter underlines that corporate management must internalize an understanding of climate risks and opportunities to make timely decisions; waiting until after its impacts are realized or certain will often cost much more and limit the range of options. Investors and the financial community, particularly those with long-term obligations and perspectives like pension funds and insurance companies, are beginning to appreciate climate risks and demand greater transparency from their investments, potentially impacting risk calculations among companies. The chapter concludes that the tools to develop business-specific climate change strategies are improving rapidly and becoming widely available.