Why companies and investors see the risks in climate

Adapted from A Newer World: Politics, Money, Technology, and What’s Really Being Done to Solve the Climate Crisis, by William Hewitt, foreword by William K. Reilly, recently published by University of New Hampshire Press.

Several months after the 2006 launch of the Stern Review on the Economics of Climate Change -- considered by many to be the most comprehensive review ever carried out on the economics of climate change -- John Llewellyn, a longtime top economist with the Organization for Economic Co-operation and Development (OECD) and then an economist with Lehman Brothers, released another seminal report. Llewellyn noted that “In the world of business and finance, climate change has developed from being a fringe concern, focusing on the company’s brand and its Corporate and Social Responsibility, to an increasingly central topic for strategic deliberation and decision-making by executives and investors around the globe.

He further said, “Businesses are likely to be affected both by climate change itself and by policies to address it through regulatory exposure, physical exposure, competitive exposure and reputational – including litigational – exposure.”

Nonprofit organizations like the Carbon Disclosure Project (CDP) play an important role in bringing a focus to the risks that corporations are incurring from climate change. The first step in managing these risks is measuring the greenhouse gas output of a business’s operations, “because in business what gets measured gets managed.” CDP gathers this data from 3,000 companies worldwide and promulgates the information to governments, investors and other businesses, academics, think tanks and NGOs.

The Climate Registry is another non-profit doing similar work with a focus on North America. In order to create a global standard for this sort of reporting, the Climate Disclosure Standards Board was formed in 2007 at the World Economic Forum. Two of the members of the founding board said “Climate change and the implications on business process and disclosure are finally becoming the topic of discussion that they deserve to be.” Mindy Lubber, another founder of the CDSB, said at the time: “This initiative is a key step to improving and standardizing company disclosure on the risks and opportunities from climate change, whether from new regulations, physical impacts or growing global demand for clean technology products.” 

Lubber is the head of Ceres. Ceres, like the U.S. Climate Action Partnership and so many other highly effective organizations dedicated to sustainability, is a coalition of scores of groups from the public interest sector as well as investment institutions and foundations. Ceres works on a number of fronts, but one of its principal jobs is making sure that corporations know that investors are watching and concerned. It works to promote awareness in the investment community of the risks and the opportunities presented by climate change. The 90 institutional investors and financial firms of the Investor Network on Climate Risk (INCR) (launched by Ceres) have some juice: The members collectively manage nearly $10 trillion in assets. When INCR talks, Wall St. and corporate boards listen. 

Next page: Is Wall Street getting the message?