Business and Climate Change
By santiago | December 13, 2007
Lehman Brothers, the investment banking and financial services firm, released a report on the economic impact of climate change in September. Their analysis concludes that carbon emissions carry a social cost of about $50 per ton, and that companies should be planning for how they will deal with likely emerging regulatory requirements and opportunities presented by emissions trading and reduced energy usage.
While this is the first comprehensive report of its kind by an organization like Lehman Brothers, these conclusions are hardly new. In fact, if you open the annual report of any energy company, you’re likely to see at least a short discussion of the company’s approach to climate change. (Take a look at at Edison International’s 2006 corporate annual report for an excellent example of how to address this issue. In particular, check out pages 4 and 81.)
And don’t think the regulators aren’t busy. Two environmentally focused NGOs, Ceres and Environmental Defense, along with financial officers of 10 states and New York City have asked the Securities and Exchange Commission to require companies to disclose the risks that climate change may pose to their bottom lines (New York Times news article available here, free registration required).
In addition to Federal regulation, there has been additional movement at the State level. New York’s Attorney General Andrew Cuomo has started an investigation of five energy companies to determine if they have adequately disclosed financial risks associated with climate change.
In the near term, energy companies are going to be the most directly effected by climate change regulations, but they will hardly be alone. Any organization that is a major user of energy should consider what impact predicted climate change will have – in terms of higher energy costs, new potential regulatory challenges, impacts on facilities, and even disruptions to global supply chains.
The good news is that there are significant economic opportunities for organizations that successfully manage their climate change risks. Emissions trading is a tool for addressing air pollution problems and providing economic benefits to companies that are the cleanest. And of course any reductions in energy use are savings that go directly to the bottom line.
Even those who are global warming skeptics should consider that it doesn’t seem prudent to ignore it from a business perspective. Businesses are better off managing the risks associated with climate change themselves rather than having an antagonist’s solutions imposed on them.