Climate Change Poses Many Business Risks

Last year set records for economic and insured losses caused by natural catastrophes. Extreme weather events in 2011 accounted for 90 percent of the disasters and eight of the 10 most costly ones, which resulted in overall losses of over $148 billion and insured losses of over $55 billion. As a joint report by Oxfam America, Calvert Investments and Ceres points out, "Climate change has already started to cause a wide range of physical effects—with serious implications for investors and businesses." The report predicts that climate change will increase those trends. The report titled, Physical Risks from Climate Change, serves as a guide for companies and investors when it comes to both disclosing climate risks and managing them. The report specifically looks at the risks of climate change to seven different business sectors, including agriculture, food and beverage sectors, apparel, electric, insurance, mining, oil and gas, and tourism. Agriculture, food and beverage and apparel sectors Some sectors rely more on water and other raw materials that are sensitive to the weather, and climate change increases the unpredictability that companies face when it comes to availability, quality and price. Both the agriculture, food and beverage and apparel sectors fit this bill. One example posed by climate change is the reported $56 million quarterly loss in 2010 in the agribusiness company Bunge's sugar and bioenergy segments caused mainly by droughts in its main growing areas in Brazil. Electric sector The electric sector is particularly vulnerable to heat waves. Warmer than average temperatures and more frequent and severe heat waves lead to more air conditioning use, which means increased power demand in the summer, and reduced winter power demand. For example, the record-setting heat wave experienced in Texas last summer led to an increased electricity demand and contributed price spikes. Constellation Energy was forced to buy incremental power at peak prices, and the after-tax impact on third quarter earnings was a reduction of about $0.16 per share. Mining sector The mining sector is very water and energy intensive, which makes the sector vulnerable to droughts and changes in rainfall patterns and levels. In 2011, Rio Tinto's Australian operations were hit by cyclones, heavy rains, widespread flooding and a related train derailment in 2011. This caused a five percent decrease in iron ore shipments from its Pilbara operations, restricted production at its Argyle diamond mine, and a six month shutdown of the processing plant at the Ranger uranium mine. Rio Tinto's earnings were reduced, as a result, by $245 million. Oil and gas sector The oil and gas sector often operates in extreme conditions, such as deepwater or the Arctic Ocean, which are prone to extreme weather events. Oil and gas companies are, therefore, at risk from climate impacts like extreme weather and sea level rise. The extreme flooding of the Mississippi River in May 2011, the type of flooding expected once every 10 to 25 years, restricted Rex Energy's operations, forcing the company to reduce its expected quarter two daily production by about 245 barrels a day for 60 days. Insurance and tourism sectors The insurance and tourism sectors are particularly vulnerable to climate change. The insurance sector has to pay the bill for insured losses caused by weather-related events. In 2011, insured losses for floods, storms and wildfires exceeded $55 billion. The tourism sector is particularly vulnerable to extreme weather events and long-term climate changes. For example, during the 2011-2012 winter, total skier visits to Vail Resorts' six mountain resort properties declined by over 15 percent due to lack of snow. Photo: Flickr user, marnanel