Climate Change Is Bad for Business

Disasters Hurt the Bottom Line

SOURCE: AP/Shakil Adil

Pakistani flood survivors wait their turn to get relief food distributed by naval officials in Sangi Village near Sukkur, in southern Pakistan on August 19, 2010. Pakistan's economy has been hammered by the flooding, and climate-related disasters like Pakistan's will inevitably hurt the U.S. economy and businesses.

By Rebecca Lefton, Richard W. Caperton | August 20, 2010

• Print
• Email
• Text-size: A A A
• Share:

Look no further than today to get a glimpse of what the future holds if we continue with business as usual: record temperatures in the United States, Europe, and Canada; wildfires and hurricanes in Russia; and flooding in Pakistan and China. Climate change is here and there’s more to come. Thousands of lives have been lost, and millions of people have been displaced from these recent disasters. But the economic tolls are also hurting businesses.

Economists estimate that Russia’s economy will lose $15 billion this year from the country’s recent disasters—a full percentage point of its expected GDP growth. About half of that loss will come from agriculture and the rest from “lower industrial output, lower demand and lower productivity.” Russia had been gaining ground from a 7.9 percent GDP loss last year, but shoppers are staying home to avoid the toxic smog and heat during the hottest summer on record. Offices are closing and factories are shutting down.

Rising food prices are already limiting spending power. Now the government has banned wheat exports through the end of the year as grain output is down by at least a third. Tourism is suffering, and the U.S. State Department issued a travel warning urging Americans to postpone trips to Russia this summer. To make matters worse, strong storms with hurricane-strength winds in northwestern Russia are further disrupting the country.

Sadly, Russia is only one “poster child for the perils of global warming” this summer. Pakistan’s floods—now covering one-fifth of the country or around the size of England—are causing one of the worst humanitarian crises ever. Pakistan’s economy was already struggling and heavily dependent on international loans. Now the International Monetary Fund says the flooding will cause “major harm to the economy,” including tens of billions of dollars in agricultural losses. Last but not least, unusually heavy rains in China earlier this summer preceded Pakistan’s disaster. They led to flooding that caused tens of billions of dollars of damage.

Countries like Pakistan are ranked as some of the most at-risk because of their vulnerability to climate change and lack of resources to respond. But these disasters are hitting us at home, too. “Biblical” floods in Tennessee this past May caused power outages and “shuttered” businesses. Before that, catastrophic rains soaked the Northeast, the Southeast, and the Midwest. So it’s clear that even developed economies are not immune to the harms of climate change. Further, these economies bear financial responsibility for aiding countries affected by climate-related events.

And these events will get worse. It’s not possible to claim that global warming causes any one event, but Dr. Kevin Trenberth, head of climate analysis at the National Center for Atmospheric Research, says that, “Nowadays, there’s always an element of both [global warming and natural variability].” And according to Jay Lawrimore, chief of climate analysis at the National Climatic Data Center, “Extreme events are occurring with greater frequency, and in many cases with greater intensity.” As a result, Russian officials are signaling an overdue shift in climate policy seriously addressing the need to “get ahead” on global warming for the first time.

Climate-related disasters like we’ve seen across the world and at home will inevitably harm American businesses. That’s why the U.S. Securities and Exchange Commission, which is tasked with making sure that investors are aware of an investment’s risks, has made it clear for the first time that climate change will have a sizeable impact on some businesses’ profits.

The SEC warned in a guidance issued this spring that, “Significant physical effects of climate change, such as effects on the severity of weather (for example, floods or hurricanes), sea levels, the arability of farmland, and water availability and quality, have the potential to affect a registrant’s operations and results.” Investors who rely on this information should expect to see more companies disclosing climate-related risks as climate change’s effects become more evident.

Investors are also paying more attention to climate change when choosing their portfolios. This year investors filed a record 101 resolutions urging 88 U.S. and Canadian companies to address the risks and opportunities climate change poses.

Businesses are suffering from an uncertain policy environment as well. This is true of both traditional energy companies, who need certainty to guide their investments, and clean energy companies, who will help the United States transition to a low-carbon economy.

The United States is losing out on billions of dollars in clean energy investments by sitting on the sidelines of the clean energy race. Deutsche Bank recently decided to spend the majority of its climate change capital in Europe and China where there are “government policies that provide transparency, longevity and certainty.”

Kevin Parker, global head of Deutsche Bank’s Asset Management Division, says the United States is missing out because it’s “asleep at the wheel on climate change, asleep at the wheel on job growth, asleep at the wheel on this industrial revolution taking place in the energy industry.” That’s why out of the nearly $7 billion in green investments that Deutsche Bank holds, only $45 million originated in the United States. American companies have formed a new Chambers for Innovation and Clean Energy advocating for a market-based solution to climate change precisely because they recognize the vast economic benefits their country is losing.

The upshot is that all U.S. companies—those that need to avoid climate disasters, that want investment certainty, and that want to unleash economic growth—stand to gain from a climate bill. A U.S. Environmental Protection Agency analysis finds that passing a climate bill will result in fewer emissions and lower the risk of catastrophic climate change. Moreover, the Peterson Institute for International Economics shows that passing a climate bill will stimulate the economy, create jobs, and make businesses healthier.

The bottom line is that U.S. businesses are being affected by climate-related disasters and will face more of them in the future. Congressional delay in passing climate and energy legislation hurts businesses by allowing global warming to go unheeded, and it also creates an unfriendly environment for companies waiting to win in the clean energy race.

Rebecca Lefton is a Researcher and Richard W. Caperton is a Policy Analyst at American Progress.