NEW YORK (Reuters) – The bankruptcy of major California utility PG&E Corp as a result of over $30 billion in costs from California wildfires sparked by the state’s prolonged drought will likely prompt more companies to discuss how they will respond to the effects of climate change on their businesses.
Already, the trend is increasing. Nearly 50 companies mentioned climate change as a factor in their risk outlook or strategic decision-making on corporate earnings calls with analysts and investors over the last 12 months, more than double the number of companies discussing climate change 4 years ago, a Reuters analysis found.
Among companies focusing on climate change were not only those in the utility or energy sectors that are significant emitters of carbon, but companies ranging from casino operator Caesars Entertainment Corp to tool maker Stanley Black & Decker Inc that tend to cater to consumers and are feeling the effects of more extreme weather patterns.
Fund managers and analysts say that the increasing focus on climate change and its impacts comes about as the effects of extreme weather are easier to quantify, whether in the form of decreased sales of winter apparel due to warming trends or disruptions in supply chains due to hurricanes.
A June 2018 report from S&P Global, for instance, found that companies that mentioned weather as a factor in their quarterly results said it influenced their earnings by an average of 6 percent.
At the same time, environmentally focused investors in the ESG sector – who rate companies based on their environmental, social, and governance attributes – are increasingly influencing company behavior as U.S. corporations work to appeal to the growing $11.6 trillion industry.
“The PG&E example will encourage other companies to think about climate change,” said Julie Gorte, a senior vice president at Pax World Funds, which has $4.8 billion in assets under management. “The science is getting better and it’s getting harder and harder for companies to say that something was an act of God and no one could have seen it coming.”
OPPORTUNITIES FROM CLIMATE CHANGE
At the same time, investors are increasingly focusing on companies that may see a benefit from adapting to changing climate patterns and the reduced cost of renewable energy.
Waste Management Inc, for instance, is reducing its climate impact and its energy costs by converting methane into natural gas to fuel its trucks, while data center operator Digital Realty Trust Inc now gets over 40 percent of its energy from renewable sources, helping it secure long-term deals with companies like Facebook Inc that are hoping to reduce their own environmental impact.
Shares of Waste Management are up over 8 percent over the last 12 months, while shares of Digital Realty are down more than 2 percent.
“Regardless of what happens in Washington, management teams are going to have to be more transparent around disclosures, and opportunities too, when it comes to the impacts of climate change,” said Lori Keith, co-portfolio manager of the $3.1 billion Parnassus Mid Cap fund.
Todd Rosenbluth, director of mutual fund and exchange traded fund research at New York-based CFRA, said that companies and asset managers are both likely to pay more attention to climate change as its effects become more apparent and investors increasingly focus on a company’s environmental impact. Environmentally focused investors are also much less likely to be swayed by lower costs at competitors, making them especially attractive customers for asset managers, he said.
“There is much less performance chasing among ESG investors, and that makes them more appealing as an investor base for companies and fund firms alike,” he said.