Climate change: The mother of all financial risks

by Guest Blogger

February 9, 2010

Climate change is the mother of all financial risks. In addition to its disastrous environmental effects, which will impact all of us, climate change is beginning to disturb supply chains, manufacturing, markets, water, and weather. In other words, global warming could soon make running a business almost impossible by transforming even well-run companies into subprime investments.

Which is probably why the SEC, which regulates our financial markets, recently ruled that corporations must show the risk of climate change on their books:

The Securities and Exchange Commission said on Wednesday for the first time that public companies should warn investors of any serious risks that global warming might pose to their businesses.

Although the agency has long required companies to reveal possible financial or legal impacts from a variety of environmental challenges, it has never specifically cited climate change as bringing potentially significant business risks or rewards.

A year ago, we showed that if the 4 largest coal companies in the U.S. were charged $1/ton for the CO2 emitted from their coal in 2007, this cost of carbon would wipe out their profits and cause most of them to lose over $150 million.

Greenpeace Green Finance Initiative coal profit chart

And that was being kind, because the going rate for CO2 in Europe is $12/ton.

What would have happened if these companies paid more of their true costs of doing business? Coal would no longer be considered a good investment or a cheap source of energy.

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