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S&P 500 Companies Focus on Climate Change's Effect on Earnings

johnhowell headshotWords by John Howell
Investment & Markets
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Of the several big issues that have attracted the attention of brands taking stands recently, climate change looks to be topping the agendas of the world’s largest companies.

The concern is literally in the air: 2017 was the third straight year of record warm temperatures in the US, with 15 severe weather events that created $1 billion or more in damages. May 2018 was another record setter, with US temperatures recording 5.2 degrees F above average.

S&P Global Ratings backs up these meteorological figures with financial data that shows increasing concern about climate by business. The ratings agency’s analysis of 10 years of earning call transcripts finds that the terms “climate” and “weather” were among the most frequently mentioned terms by S&P 500 executives. The report, a joint effort with Resilience Economics, a climate risk management specialist, noted that 15 percent of S&P 500 companies publicly disclosed an effect on earnings from weather events, recording an average impact of six percent (although only four percent of companies quantified the effect).

S&P concludes “The effect of climate risk and severe weather events on corporate earnings is meaningful. If left unmitigated, the financial impact could increase over time as climate change makes disruptive weather events more frequent and severe...As management teams become more accountable for the financial impact of weather events, it is expected that more companies will step up their reporting.”

The implications are clear for publicly traded companies, said the ratings agency: “We may begin to see institutional investors build climate risk factors into their portfolio selection processes, thereby placing greater emphasis on climate when directing investments.”

This rising concern by business has taken a concrete step in the We Are Still In coalition, a group formed to support climate action in meeting the terms of the Paris Agreement despite the administration’s announcement intention to pull the US out of the Accord. Its overall numbers are large, and still growing: to date, 2,809 leaders (mayors, county executives, governors, tribal leaders, college and university leaders, businesses, faith groups, and investors), representing 171.4 million people across all 50 states and $6.45 trillion in assets. The business sector alone is represented by 1,906 companies and investors.

With a growing material impact on bottom lines, and with widespread social support, taking a stand on climate change is a position that makes financial as well as social sense.

Photo: S&P Global Ratings

This story originally appeared in the Brands Taking Stands Newsletter

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John Howell headshotJohn Howell

John Howell, Chief of Thought Leadership and Editorial Director, is a co-founder of 3BL Media, the parent company of Triple Pundit, begun in 2009. Howell oversees original editorial content procurement and creation. He is also the author of the weekly Brands Taking Stands Newsletter. He has written and edited for Elle, Artforum, High Times, the New York Times Magazine, and the LA Times. Howell is based in Wonalancet, NH.

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