Climate change looms for financial firms

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The World Economic Forum’s annual risks report found, for the first time in its 15-year history, that environmental concerns around climate change are likely to have a major impact in the coming decade.

Investment management firm BlackRock said it would take a tougher approach to corporations that aren’t fully accounting for environmental risks, according to a report by The Wall Street Journal.

The WEF report spelled out risks for businesses that revolve around climate change, including diversity losses and ecosystem collapses that could result in “severely depleted resources for humankind, as well as industries.”

Companies should focus on resilience as the Earth’s temperature is poised to rise 3.2 degrees Celsius higher than preindustrial levels — and that’s if the world meets climate commitments laid out in the Paris Agreement, according to WEF.

“While this may not seem like much, it can contribute to the manifestation of immense catastrophes, such as the ongoing wildfire crisis in Australia spurred by heat waves and flash floods in Indonesia,” the WEF reported.

The five largest risks outlined in the report:

  1. Extreme weather events with major damage to property, infrastructure and loss of human life
  2. Failure of climate-change mitigation and adaptation by governments and businesses
  3. Human-made environmental damage and disasters, including environmental crime, such as oil spills and radioactive contamination
  4. Biodiversity loss and ecosystem collapse with irreversible consequences for the environment, resulting in severely depleted resources for humankind, as well as industries
  5. Major natural disasters, such as earthquakes, tsunamis, volcanic eruptions and geomagnetic storms

BlackRock said it’s putting its focus on sustainability because the costs of climate change have ramifications on the price of assets and the financial ecosystem.

“Climate change has become a defining factor in companies’ long-term prospects,” BlackRock chief executive Laurence Fink said in his annual letter, according to WSJ. “The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.”

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