The planet is putting an exclamation point on a pivot away from business as usual, as we now acknowledge the physical and economic risks of climate change accruing to all sectors of the global economy. That pivot is now underway. Shareholders and courts have put oil majors on notice, while the International Energy Agency published a “we’re out of time” manifesto, declaring no headroom for new oil production. The U.S. Securities and Exchange Commission is preparing to issue rules on climate disclosures, following other jurisdictions from around the globe. We would be mistaken to think that such a rapid course correction is enough to meaningfully address the global climate crisis that will fundamentally alter the way societies and markets operate. We see an emerging consensus around how investment decisions could be better connected to the imperative of transitioning our global energy systems to net zero carbon emissions by mid-century. Consideration of these factors is not just “nice to have” but increasingly fundamental, impacting financial performance and altering cash flows and the valuations. Evaluating and quantifying the risks of climate change, combined with better identification of the opportunities, leads to improved financial decision-making, enhanced outcomes and more-resilient businesses.
By Michelle Dunstan, Lisa Sachs, and Art Lerner-Lam. Barron’s. August16, 2021.