The pandemic has exposed how woefully unprepared the global financial system is for climate change, which will cause significantly more damage over a longer period than the relatively short, sharp disruption of COVID-19.
“We’re seeing the problems associated with COVID-19 to the global economy and asset values,” said John Streur, president and CEO of Calvert Research Management. “Those same kinds of risks exist and have been written about regarding climate change.”
Companies deprioritise climate risks because they tend to be long-term and have uncertain effects. Addressing them could require short-term investments that will likely eat into profits, and the issues are often outside the expertise of company boards and management. Key to engaging with companies on those issues is speaking their language.
“We can reframe some of these issues as business problems and not simply environmental problems,” said John Wilson, Calvert director of corporate engagement. “We can ask companies to analyse what the long-term impact of a low-carbon economy will be on their business. We can ask them if their governance and management systems are adequate to manage the transformation to a low-carbon economy or to using less water.”
Shareholder advocacy will also play a role in forcing companies to consider climate risk. Shareholder climate action in this form took off in 2019, with major companies like BlackRock joining advocacy group Climate Action 100+.
“Every company has people inside it who want the company to do more, who want the company to be leaders in this area,” Mr Wilson said. “By hearing from shareholders, these advocates can have more influence with management and perhaps make more progress.”
Research from Verisk Maplecroft shows that the transition to renewables may be slowed by the pandemic, with governments deprioritising green energy initiatives in favour of deregulatory agendas and rapid economic restarts. But Mr Streur says “there’s still time” to address climate risk.
“Unfortunately, we have this real-life experience that shows us how difficult this kind of risk is to deal with,” Mr Streur said. “But at the same time how devastating it can be to human health and wellbeing and the financial wellbeing of the planet.”
