Climate change is now one of the main vectors of risks and opportunities for business. Most large companies operating in Brazil have already understood this and are working to address the problem. This is the main conclusion of the study 'How companies have been contributing to the Paris Agreement', which will be launched today by the Brazilian Business Council for Sustainable Development (CEBDS), at the 2019 United Nations Conference on Climate Change (COP25) , in Madrid, Spain.
The study, carried out with the support of WWF-Brasil and CDP (Carbon Disclosure Program) Latin America, is based on the responses of 61 Brazilian and multinational companies with operations in the country, which represent around 90% of the capital traded on the stock exchange in Brazil. In its second edition, the survey showed that understanding climate impacts through a financial lens has helped companies to materialize the associated opportunities. Although estimated, in 2018, they reported opportunities that represent positive financial impacts of US$ 123.7 billion, with an investment required to materialize them of US$ 17.5 billion. While the risks showed negative impacts of US$ 45 billion.
“That is, there is a clear business justification for investing in solutions that contribute to the decarbonization of the economy,” said Marina Grossi, president of CEBDS. Many companies have already realized this and are directing investments in research and development of low-carbon solutions, with the total amount allocated for this purpose in 2018 being US$ 7.7 billion.
“The study also shows a growing understanding by companies that the climate crisis threatens the financial stability of business,” noted Alexandre Prado, Green Economy Director at WWF-Brasil.
Climate change as a risk factor
According to the 2019 Global Risks Report of the World Economic Forum (WEF), climate change appears directly or indirectly associated with three of the five most likely global risks and four of the five global risks with the greatest negative impact. . In this case, global risk is defined as an uncertain event or condition that, if it occurs, could negatively impact multiple industries and countries over the next 10 years.
“Since efficient management necessarily depends on measurement capacity, by establishing a financial metric for climate risks, companies are able to adopt strategic measures towards the new economy and gain competitiveness”, said Lauro Marins, Executive Director of CDP Latin America . The study shows that 32% of Brazilian companies adopt science-based targets and 33% carry out internal carbon pricing. In other words, they are voluntarily assigning prices to their emissions as a way of managing climate-related risks and opportunities. Other 21%s intend to do internal pricing in the next two years.
“The results of the companies revealed in this study demonstrate that tackling climate change represents more opportunities than risks for Brazil. In summary, it is financially more advantageous to make investments to materialize these opportunities than to manage the negative impacts of climate change”, explained Marina Grossi.
This learning by companies can help in the construction of appropriate policies aimed at greater resilience of the Brazilian economy in the face of the impacts generated by climate change. “This theme could be incorporated as one of the critical variables in the reform proposals under discussion in the country. Thus, economic, tax and environmental policies, among others, would no longer compete with each other, but could converge to strengthen Brazil's competitiveness in this new economy,” said WWF-Brazil's Green Economy Director.
The integration of climate issues in the construction of these policies can even provide solutions to address the current budget deficit through innovative financial instruments such as green bonds and incentivized debentures. The study highlights that there is a growing investor appetite for these financial products. The global impact investing market, which considers Environmental, Social and Governance (ESG) criteria, already moves US$ 502 billion, considering the assets of 1,300 impact investors from all over the world. In Latin America alone, US$ 521 billion were raised via green bonds worldwide and US$ 7 billion.
MAIN RESULTS OF THE CEBDS STUDY
83% identify risks associated with climate change.
85% identify opportunities associated with climate change.
93% integrate climate change into business strategy.
68% make use of weather scenarios.
30% have developed a decarbonization plan and 10% have a decarbonization plan under development to be finalized in the next 2 years.
33% use internal carbon pricing. Other 21% intend to do so in the next 2 years.
32% committed to a science-based goal.
Companies analyzed invested a total of US$ 7.7 billion in low carbon R&D.