Climate change is a reality that cannot be ignored; it is increasingly manifesting itself in extreme weather events that affect human life, the economy and the environment. In recent years, heat waves, floods, forest fires and hurricanes have become more frequent and severe, revealing the vulnerability of infrastructure and physical assets in various sectors. These phenomena force companies to invest in sustainable and resilient asset management strategies to ensure business continuity and reduce exposure to climate risks.
Figure 1: Types of risks identified by the Intergovernmental Panel on Climate Change (IPCC)1
According to Morningstar Sustainalytics - a platform that evaluates and ranks the environmental, social and governance (ESG) performance of companies and investments - climate risks are increasing significantly, leading organizations to reconsider how they manage their assets to ensure long-term resilience and sustainability. The organization has even published a report aimed at helping investors navigate the risks related to climate change and develop strategies to align their investments with the transition to a low-carbon economy.
For investors and companies, pressure to meet emissions targets, tightening regulations, political debates and the physical impacts of climate change present uncertainties and risks. However, these factors also represent opportunities to invest in solutions that can contribute to a more just and sustainable global economy. Solutions range from using resources more efficiently to developing renewable energy technology.
Mornigstar Sustainalytics "Navigating Material Climate Risks in the Global Equities Market"
Other recent studies show that exposure to climate risks results in substantial financial losses. For example, an MSCI report states that companies that fail to adapt to this reality could see the valuation of their assets fall dramatically, with negative impacts on their operations and profits.
This scenario requires companies to respond quickly and effectively in order to minimize the risks associated with climate change.
Climate and weather-related disasters have resulted in billions of dollars in losses...
Mornigstar Sustainalytics "Navigating Material Climate Risks in the Global Equities Market"
The insurance, real estate and infrastructure sectors are particularly vulnerable to climate change. Assets located in areas prone to natural disasters face high risks, making them increasingly difficult to insure. The MSCI report - 2024 Sustainability and Climate Trends to Watch shows how several insurers have abandoned high-risk areas...
Data from the World Bank... suggests that 70% of global infrastructure needs to be adapted...
Logistics and the supply chain are areas facing unique challenges due to climate risks. Rising temperatures and extreme weather events have a direct impact on worker productivity...
Agriculture and food production are other sectors facing significant challenges... Extreme events such as droughts and floods result in compromised harvests and disruptions to supply chains.
Physical risks are those related to damage inflicted on infrastructure and other assets...
A McKinsey article explores how companies adapt to climate change...
1. Strengthening Resilience with Adaptive Infrastructures
2. Using Technology for Effective Risk Management
3. Investing in Nature-Based Solutions4
...initiatives, which include reforestation and ecosystem restoration; regenerative agriculture; watershed restoration; alternative stormwater management systems; urban plantations; ecological corridors...
The growing threat of physical climate risks requires an urgent and well-planned response from companies...
...companies that demonstrate leadership and responsibility in relation to sustainability will play a crucial role in the future.
Companies must therefore not only respond to climate risks, but also lead by example...