February 18, 2019 / Regnan Archive

Alison George

18 February 2019 

As the floodwaters have receded in Townsville, the town and wider region are contemplating much more than mould.

They will be looking at the extent to which business and the economy will be impacted by the disastrous extreme weather event.

More than 8,500 claims have been lodged so far, and losses are estimated at $105 million – but that figure is expected to rise.

Townsville Chamber of Commerce CEO Marie-Claude Brown told ABC she was worried that industries including retail and hospitality would be particularly badly hit.

Until now, Australian companies and investors alike have tended to think of the impacts of a changing climate in terms of energy transition and regulatory risk.

Less considered are the climate impacts already beginning to reveal themselves within the bottom lines of companies from a range of sectors. How will businesses and portfolios fare with the 4 degrees of warming we are forecast to face this century, if business as usual continues?

Climate change has given rise to a range of physical risks that can impact in the here and now. And though destruction from storms, floods, fire or droughts may grab the headlines, it is the gradual impacts on our everyday lives that are under-considered.

Our research shows 42.5% of ASX200 listed companies face elevated exposure to climate change in the medium term, and 16.5% already have a high exposure. The majority of that risk relates directly to physical impacts – we estimate that $777 billion of ASX200 market cap is exposed (as at 22 Jan 2019).

Many of these risks may be laying dormant within company value chains. Many sectors rely on infrastructure that may be damaged by storms or floods or interrupted by heat stress, with the potential for operations to be halted for weeks – whether it be due to a downed data centre or freight, such as the Pacific National train that was tipped over into the water.

Other businesses, including transport and packaging companies, serve the agriculture sector which is already becoming increasingly volatile. The floods were devastating for Queensland livestock producers, especially on the back of the drought conditions.

Climate is affecting demand patterns for everything from outdoor leisure centres to winter coats. Volatile weather has been affecting entertainment such as theme parks and horseracing. Before merging with Tabcorp, Tatts Group reported a 3.7% decline in wagering revenue, in part due to the cancellation of 347 horse races following unseasonably wet weather.

For service-oriented companies reliant on people, more attention may need to be paid to the impact on productivity from extended hot spells or damaging floods. While the office might be air conditioned, employees will still be subject to sleepless nights and stressful transport disruptions, impairing their performance. And outdoor workers simply cannot work in dangerously hot conditions.

Not all companies, though, face downside risk from climate change – many are well positioned to leverage new markets, innovate new products and harness new technology to address climate change. And it’s not just renewables and electric vehicle (EV) companies, it’s the miners of the components required for these technologies, including their financiers.

Those providing goods and services that support people to adapt will also benefit – from green star buildings to innovations to protect crops and new finance models to help individuals, businesses and governments adapt.

Investors, concerned about long term returns, are looking to understand how investee companies are planning for, or capitalising on, a changing climate. Pressure will only mount on companies to provide the market with relevant information about the risks (or opportunities) they are facing, and actions taken to mitigate them, preferably aligned to the TCFD framework.

This should lead to a broadening of focus from efforts to reduce carbon footprint, to encompass business resilience and adaptation to better cope with a permanently changed climate. After all, no investor wants shares in the next “climate casualty” – a fate surely awaiting those companies failing to take seriously the risks associated with a changing climate.

This piece was originally published in News Corp’s regional papers in Queensland available here →

Regnan Global Equity Impact Solutions Fund

This fund is distributed in Australia via Pendal and in the UK, Europe and other countries via J O Hambro Capital Management.

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