Companies are too conservative in estimating the future costs of climate change, according to physicist and science writer Mark Buchanan.
Writing in Bloomberg Opinion, the former editor of Nature and the New Scientist argued that while more companies are preparing for extreme weather and other disruptions, they aren’t accurately forecasting the threat.
Around 69 percent of market capitalization stems from companies that report their exposure to climate change. Companies that view risks as certain or likely have almost doubles to 67 percent compared to three years ago, too.
But whereas experts estimate that as much as $20 trillion, or 20 percent of total financial assets at present, could be lost in the event of catastrophic weather or other climate-related trends, companies are expecting to lose only tens of billions of dollars
“That’s an alarming 100 times smaller than even the most conservative scientific estimate,” Buchanan warned.
Companies also don’t take indirect costs into consideration, like how their supply chains might fail in certain circumstances or how climate change might hurt income worldwide, slackening demand. Only 3 percent of businesses took this issues into consideration, Buchanan said.
The short-term nature of finance and the long-term nature of climate and the environment are at odds, Buchanan argued. Only by assimilating the risks that climate change poses years from now will investors and fund managers protect the assets they shepherd every day.