Incentive for investors: Disclosure of climate risks
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Assessing and disclosing the risks that climate change poses to your business is becoming increasingly important for investors. Environmental risks in supply chains are estimated to cost $120 billion over the next five years. (1) With proper risk assessment and management of your supply chain, your company can adapt not only to social and environmental changes, but also to the new expectations and demands of investors.
Key messages:
- Climate change makes companies vulnerable to risks in their supply chains.
- Investors have a growing interest in transparent reporting of these risks so that they can make climate-resilient investment decisions.
- Climate risks can be physical or "transitory."
- Companies in the food industry face significant climate risks related to their supply chains. Regenerative agriculture is one way to mitigate these risks and demonstrate supply chain resilience to investor:in.
The growing climate risk
The threat of climate change presents us all with new financial challenges. Let's look at natural catastrophes, for example: Munich RE reports that natural catastrophes caused losses totaling $280 billion in 2021. The most expensive was Hurricane Ida, which alone was responsible for $65 billion. In Germany, flash floods following heavy rain caused around 8.2 billion euros in damage - the most expensive consequence of climate change for Germany to date. (2)
These catastrophic natural disasters are one reason why companies are committing to climate strategies at the national and international level. But there are many other incentives for companies: Threats to the supply chain, government mandates, and pressure from stakeholders such as customers, employees, and investors. Climate protection measures are making their way into every industry - a rapid development that is being compared with the beginnings of digitalization. (3) Of course, the financial market is not spared from these challenges and must remain robust when legal and regulatory measures lead to a shift away from fossil fuels.
Why climate risks are relevant for investors
As the predicted and already palpable dangers of climate change become the focus of investor attention, experts predict the largest restructuring of capital in history and a radical upheaval of value pools from which new industry winners and losers will emerge. (4) According to research by Bloomberg Intelligence, environmental, social and governance (ESG) assets could be worth $53 trillion by 2025. (5)
"There is a growing demand for decision-relevant, climate-related information from a range of participants in the financial markets. Lenders and investors increasingly demand access to risk information that is consistent, comparable, reliable, and clear." - Task Force on Climate-related Financial Disclosures (TCFD) (6).
Investors have long called for frameworks with firm criteria for assessing climate change and its impacts on the financial sector to provide transparent insight into a company's prospects. (7) In 2019, 631 Investor:ins managing more than $37 billion signed a global Investor Declaration that was submitted to governments worldwide. The goal was to improve climate-related reporting and "commit to implementing the TCFD recommendations in their countries no later than 2020." (8) To date, most companies in the EU conduct climate change reporting on a voluntary basis - but from 2024, the new EU Corporate Sustainability Reporting Directive (CSRD) will make such reporting mandatory for most large companies. (9)
What are the different types of climate risks?
The analysis of climate risks is very complex for companies. First, there are the acute physical risks, such as damage caused by extreme weather events like storms or floods, and the chronic physical threats, such as rising sea levels, temperature changes, or increasing droughts in certain regions. These risks threaten locations, supply chains, and entire value networks - both in the short and long term.
The path to climate neutrality also entails a variety of other so-called "transition risks," i.e., financial risks that arise directly or indirectly from the process of adapting to climate change. (10) These could include:
- Rising energy and raw material costs in the value chain if CO₂ is given a price.
- Regulatory risks, such as government control of emissions trading.
- Legal risks such as laws or sanctions.
- Risks to a company's reputation due to changing consumer:internal attitudes.
With so many uncertain factors, it is not surprising that a comprehensive review of the various risks - and plans to mitigate them - is becoming increasingly attractive to investor:s.
Increased importance for food companies
Companies in the food industry are particularly exposed to risks from climate change. The greatest risks lie in the upstream value chain. The agricultural sector is already feeling the effects of climate change strongly. (11) "Transition risks" for the food industry are also high, as food production accounts for ¼ - ⅓ of global greenhouse gas emissions, depending on the source. (12), (13) For companies in the food industry, assessing climate risks is therefore both a major challenge and extremely important.
Regenerative agriculture is a solution strategy to mitigate these risks that signals to investors that your company is committed to supply chain resilience. Klim helps you implement regenerative measures to reduce the climate impact of your food production and increase resilience to the effects of climate change. Properly implemented, regenerative agriculture is a way to increase supply security in a rapidly changing climate. Learn more about how Klim can help you partner to make your supply chain more resilient to climate risks here.
Sources:
(1), (2), (3), (4), (5), (6), (7), (8), (9), (10), (11), (12), (13)
Get more information on how to use the potential of regenerative agriculture in your business.
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Incentive for investors: Disclosure of climate risks
Assessing and disclosing the risks that climate change poses to your business is becoming increasingly important for investors. Environmental risks in supply chains are estimated to cost $120 billion over the next five years. (1) With proper risk assessment and management of your supply chain, your company can adapt not only to social and environmental changes, but also to the new expectations and demands of investors.
Key messages:
- Climate change makes companies vulnerable to risks in their supply chains.
- Investors have a growing interest in transparent reporting of these risks so that they can make climate-resilient investment decisions.
- Climate risks can be physical or "transitory."
- Companies in the food industry face significant climate risks related to their supply chains. Regenerative agriculture is one way to mitigate these risks and demonstrate supply chain resilience to investor:in.
The growing climate risk
The threat of climate change presents us all with new financial challenges. Let's look at natural catastrophes, for example: Munich RE reports that natural catastrophes caused losses totaling $280 billion in 2021. The most expensive was Hurricane Ida, which alone was responsible for $65 billion. In Germany, flash floods following heavy rain caused around 8.2 billion euros in damage - the most expensive consequence of climate change for Germany to date. (2)
These catastrophic natural disasters are one reason why companies are committing to climate strategies at the national and international level. But there are many other incentives for companies: Threats to the supply chain, government mandates, and pressure from stakeholders such as customers, employees, and investors. Climate protection measures are making their way into every industry - a rapid development that is being compared with the beginnings of digitalization. (3) Of course, the financial market is not spared from these challenges and must remain robust when legal and regulatory measures lead to a shift away from fossil fuels.
Why climate risks are relevant for investors
As the predicted and already palpable dangers of climate change become the focus of investor attention, experts predict the largest restructuring of capital in history and a radical upheaval of value pools from which new industry winners and losers will emerge. (4) According to research by Bloomberg Intelligence, environmental, social and governance (ESG) assets could be worth $53 trillion by 2025. (5)
"There is a growing demand for decision-relevant, climate-related information from a range of participants in the financial markets. Lenders and investors increasingly demand access to risk information that is consistent, comparable, reliable, and clear." - Task Force on Climate-related Financial Disclosures (TCFD) (6).
Investors have long called for frameworks with firm criteria for assessing climate change and its impacts on the financial sector to provide transparent insight into a company's prospects. (7) In 2019, 631 Investor:ins managing more than $37 billion signed a global Investor Declaration that was submitted to governments worldwide. The goal was to improve climate-related reporting and "commit to implementing the TCFD recommendations in their countries no later than 2020." (8) To date, most companies in the EU conduct climate change reporting on a voluntary basis - but from 2024, the new EU Corporate Sustainability Reporting Directive (CSRD) will make such reporting mandatory for most large companies. (9)
What are the different types of climate risks?
The analysis of climate risks is very complex for companies. First, there are the acute physical risks, such as damage caused by extreme weather events like storms or floods, and the chronic physical threats, such as rising sea levels, temperature changes, or increasing droughts in certain regions. These risks threaten locations, supply chains, and entire value networks - both in the short and long term.
The path to climate neutrality also entails a variety of other so-called "transition risks," i.e., financial risks that arise directly or indirectly from the process of adapting to climate change. (10) These could include:
- Rising energy and raw material costs in the value chain if CO₂ is given a price.
- Regulatory risks, such as government control of emissions trading.
- Legal risks such as laws or sanctions.
- Risks to a company's reputation due to changing consumer:internal attitudes.
With so many uncertain factors, it is not surprising that a comprehensive review of the various risks - and plans to mitigate them - is becoming increasingly attractive to investor:s.
Increased importance for food companies
Companies in the food industry are particularly exposed to risks from climate change. The greatest risks lie in the upstream value chain. The agricultural sector is already feeling the effects of climate change strongly. (11) "Transition risks" for the food industry are also high, as food production accounts for ¼ - ⅓ of global greenhouse gas emissions, depending on the source. (12), (13) For companies in the food industry, assessing climate risks is therefore both a major challenge and extremely important.
Regenerative agriculture is a solution strategy to mitigate these risks that signals to investors that your company is committed to supply chain resilience. Klim helps you implement regenerative measures to reduce the climate impact of your food production and increase resilience to the effects of climate change. Properly implemented, regenerative agriculture is a way to increase supply security in a rapidly changing climate. Learn more about how Klim can help you partner to make your supply chain more resilient to climate risks here.
Sources:
(1), (2), (3), (4), (5), (6), (7), (8), (9), (10), (11), (12), (13)
Similar articles you might like
Binding carbon, increasing biodiversity: CO2 certificates from regenerative agriculture
Biodiversity and climate protection: the importance of co-benefits in climate protection projects
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