Ross Kerber, Simon Jessop

LONDON/BOSTON, (Reuters) – As businesses and investors increasingly commit to reducing their carbon emissions and other stakeholders do the same, scientists Monday warned that it is crucial to understand the consequences of global warming and to plan accordingly.

Companies and investors will be exposed to increasing sea levels and water scarcity as well as impacts from hurricanes, floodings and droughts.

The Intergovernmental Panel on Climate Change issued a report that warned of the dangers of not limiting global warming to 1.5 degrees Celsius above preindustrial levels, and failing to adapt to climate change.

Cinzia Lösenno (climate adaptation lead, European Investment Bank), spoke out. This lending arm of European Union aims for an annual adaptation spending of 4.48 billion euro ($4.48 Billion) by 2025.

We are improving our understanding of the risk of investing in high-carbon assets and the transition risk. However, we still have a lot to learn about the financial system’s understanding of the effects of climate change on assets.

Impax Asset Management founder Ian Simm said that the report was “hard hitting” and highlighted the magnitude of the uncertainty faced by companies, and called for greater preparation.

ARMS AROUND DATA

Around the world, regulators are just beginning to establish rules about how businesses should report the effects of their climate-related operations and any potential risks.

A October analysis of the Task Force on Climate Related Financial Disclosures Framework found that many companies were not fully reporting climate risks.

Chris Goolgasian (director of climate research, portfolio manager for the Sustainable Investment Team, U.S. asset manager Wellington Management), stated that “on the whole disclosure is massively missing.” The group invests over $1 trillion.

Is it possible for some businesses to tackle the problem full-time and do a great job? Sure. What is the average company doing? No. Wall Street isn’t able to access enough information from the median company to assess all risk factors, and to see all plans for addressing them.

Wellington has joined forces with Woodwell Climate Research Center in an effort to help companies get better data.

“Companies should prepare for climate change, and demonstrate that they can adapt to it, whether through resilient supply chains, business models or other means,” stated Nicolette Bartlett (Chair Impact Officer, climate non-profit CDP).

Bartlett claimed that the IPCC report has made it even more important to work towards 1.5C, and that failure would make adaptation worse. Therefore, he called on companies to create five-year action plans for capital expenditure.

Oliver Johnson, Climate Asset Management’s Head of ESG, stated that the report demonstrated the necessity for cities and nations to invest in more resilient, “green” infrastructure. This will increase ecosystem’s adaptive potential.

He said that climate-related risks can cause disruptions for investors, including reduced yields and increased insurance premiums.

We believe that investors who demonstrate a demonstrated ability to manage climate risks and access capital will have a better chance of accessing capital as regulations regarding it increase.

($1 = 0.8925 euros)