By Ciara Linnane, MarketWatch
The lack of a clear policy on climate-risk disclosures is putting U.S. companies and their customers at risk from climate change, according to a new report published Wednesday.
The report by nonprofit CDP on how companies and cities across the U.S. are reacting to climate change found that they are increasingly aware that it’s a real risk to their businesses and communities — one that’s causing actual disruption — but they are not all reacting in the same way to neutralize risk, and many are not taking the measures they need to adapt to a low-carbon economy.
“The chaotic policy landscape is at minimum distracting and at worst sending weird signals,” said Sara Law, vice president, global initiatives at CDP, which runs the global environmental disclosure system for companies, investors, cities, states and regions. The organization works closely with other parties pushing for mandatory climate-risk disclosure, including the Task Force on Climate-related Financial Disclosures (TCFD) and nonprofit Ceres.
She cited as one example the case of Columbus, Ohio–based utility American Electric Power & Co. /zigman2/quotes/209801263/composite AEP -0.09% , which told CDP that policy uncertainty and a shifting regulatory landscape are more costly than it would be to have to comply with a fixed set of rules. “Companies need a policy that promotes transformation and gives clear signals that companies know they should act upon,” she said.
The data gathered in 2017 for the report included disclosures by cities for the first time, offering an additional layer of information on how climate change is being managed, with insights on targets and investments at the municipal level intersect with where companies are located and where workers, customers and suppliers live and work.
The good news is that despite the Trump administration’s climate-change skepticism and the president’s decision to pull the U.S. from the Paris Agreement, much is still being done at the local level to stick with that accord’s primary goals of curbing greenhouse-gas emissions and keeping warming over the century to 2 degrees Celsius. Insurers have consistently warned that any greater warming would make the world uninsurable.
California, for example, has made several key moves, including legislation for 100% carbon-free electricity by 2045, Colorado has a fresh Climate Action Plan that bolsters a 2017 pact to reduce greenhouse-gas emissions by 26% by 2025, and North Carolina has committed to a 40% reduction in such emissions.
The recent U.S. National Climate Assessment is another helpful tool in pushing for climate-risk disclosure as it quantified the expected economic costs of inaction, said Law. Then there are the increasing examples of climate-related losses that are not covered by insurance, as Munich Re /zigman2/quotes/205537285/delayed DE:MUV2 -3.13% has pointed out. The 2017 North Atlantic hurricane season generated losses of $215 billion, with roughly $120 billion of that total expected to be uninsured, the reinsurer said.
Individual companies are becoming more open about their concerns and more aggressive in tackling the issue, said Law. United Airlines /zigman2/quotes/205037281/composite UAL -4.03% , for example, realizing the obvious risk posed to its business by operational disruptions caused by extreme weather events, has committed to reducing its greenhouse-gas emissions by 50% by 2050. Its plan includes developing a market for sustainable aviation biofuels over time, a move that could help the entire airline sector migrate away from fossil fuels.
One company that was explicit in outlining the risk of climate change to its business is Deere & Co. /zigman2/quotes/207941296/composite DE -2.12% , the maker of agricultural and construction machinery.
“Global climate change, its causes, methods of mitigation and adaptation, coupled with growing populations and increasing demand for higher value food, feed, fiber, fuel, and energy, present complex and interconnected challenges which will continue to increase in the coming years,” the company told CDP.
Still, more needs to be done at a faster pace and on a grander scale, said Law, who has identified four factors that are needed: visionary thinking, collaboration, bold commitments and innovation.
“Whether you are a company or city government, you need someone to give birth to the big idea,” she said. “You can’t solve it alone.”
“You need to set out for the North Star, knowing you might not get there, but you should aim there. You need to bring innovators, whether investing in new technology or improving old technology. If you don’t have an enabling policy environment, you won’t achieve the change at the pace required, which is why environmental regulation is essential.”
Among environmentally oriented exchange-traded funds, the Invesco Global Clean Energy /zigman2/quotes/202774103/composite PBD -2.46% has fallen 16% in 2018. The Invesco Water Resources ETF /zigman2/quotes/204669362/composite PHO -1.06% has declined 4% during that time frame. The S&P 500 /zigman2/quotes/210599714/realtime SPX -0.54% has fallen 1.4% so far this year, matching the year-to-date decline of the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.99% .