ThinkTWENTY20

Flooding. Lower water levels, Wild fires in the west, rising ocean levels, major storms - all are becoming more common. The related losses to businesses are also becoming more common and investors are becoming aware of the risks that companies face. 

 “The world’s largest companies estimated that at least $250 billion of assets may need to be written off or retired early as the planet heats up. Those assets include buildings in high-risk flood zones, or power plants that may have to shut down in response to tighter pollution rules.” – Forbes Magazine

PG&E insurance faces liabilities that it estimates at over $30 billion in the aftermath of November's Camp Fire, which killed more than 85 people and destroyed more than 14,600 homes, making it the most destructive wildfire in California history.

Investors are avoiding companies ranging from retailers with large footprints in Florida to utilities in Southern California to barge shipping companies that may have to deal with more frequent Midwestern floods.

For some time, investors have practiced “responsible investing”, which directs their investments to companies that take the greatest care not to harm the environment. Companies have provided Environmental and Sustainability reports (part of their ESG reports – environmental, sustainability and governmental reports.)  

But these ESG reports have largely focused on what the companies are doing to help protect the environment. They have not been as good at reporting the risks they face from environmental issues or climate change.

Investors are concerned about these losses, thus the emergence of ESG Investing.

ESG investing focuses the investing activities on a wholistic view of the impact of environmental risk and ESG policy on a company. There is some work to be done, however, to line up the content of ESG reports with investor ESG concerns. Companies need to place more emphasis in identifying, assessing and reporting on the environmental risks they face.