Asset owners and fund managers will increase demands for greater information on the climate risks companies are exposed to and how they plan to deal with those risks. Here are some key points:
- Vital investment markets are exposed to both physical and transition risks
- ESG investors will also need to consider corporate engagement with those threats
How can companies manage climate change risk?
Businesses working out that the question is not whether to manage climate risk, but how to do it. Successfully meeting the needs of investors and regulators by incorporating climate risk analysis into wider management strategies will set companies apart.
The pitfalls of failure are significant: major investors like Blackrock are set to act against companies that don’t disclose in line with the TCFD recommendations, while Moody’s 2017 warning to cities that they will lose access to cheap credit without adequate preparations for climate change could just as well be aimed at corporate finance teams – or national governments in key markets. Countries seeking to enter the rapidly accelerating sovereign green bond market will also take note.
Investor power has compelled Exxon Mobil to publish its first climate risk assessment this year. Companies similarly-exposed to transition risks, related to the shift to a lower-carbon economy, and physical risks from the impacts of climate change will certainly face more of the investor pressure, campaigns, and even court cases that flared up during 2017.
Many companies have already started the journey: by December 2017, almost 240 companies with a combined market capitalisation of USD6.3 trillion had committed to supporting the TCFD proposals. A groundswell of pressure this year can only translate into greater corporate compliance.