The Business of Climate Change

Climate change poses enormous economic risks.

The Intergovernmental Panel on Climate Change (IPCC) suggests that the likely costs of just 2°C of global warming would be of the order of 0.5–2% of global GDP by the middle of the century, even if strong adaptation measures are taken. In the United States, reports from the Risky Business Project show that the economic impacts of climate change will likely grow. For example, within the next 15 years, higher sea levels combined with storm surge will likely increase the average annual cost of coastal storms along the Eastern Seaboard and the Gulf of Mexico by $2 billion to $3.5 billion. Adding in potential changes in hurricane activity, the total annual price tag for hurricanes and other coastal storms grows to $35 billion.

The costs of inaction on climate change are greater than the costs of action.

A report from the New Climate Economy highlighted that the additional investments in infrastructure needed to make the transition to a low-carbon economy will be modest. An average of $6 trillion per year will be invested in infrastructure until 2030. To make these investments low carbon would require additional investments of $270 billion a year. These higher capital costs could potentially be fully offset by lower operating costs, for example from reduced expenditure on fuel. Another study by the Risky Business Project highlighted similarly manageable costs to build a low-carbon economy in the United States, also offset by significant savings in fuel costs.

Investors, businesses and regulators are working to minimize the economic risk posed by climate change.

In 2017, shareholders of ExxonMobil and Occidental Petroleum voted to require those companies to begin reporting climate-related risks to its business. Eleven banks representing more than $7 trillion in capital recently announced plans to become the first in the industry to put new international climate risk disclosure guidelines into practice. In the United States, the Securities and Exchange Commission has issued guidance that companies must disclose financially material impacts related to climate change, though the agency has subsequently been criticized for not enforcing its own guidance.

Investment in measures to reduce climate risk is growing rapidly.

As of last year, the clean energy industry in the United States generated $200 billion in revenue, which is the same as domestic pharmaceutical manufacturing. This is projected to grow. Citibank is investing $100 billion in clean energy and Bank of America just launched a clean energy bond worth $1 billion. 63 percent of Fortune 100 companies now have clean energy goals.

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