The Climate Disruption

What You Need to Know in 2020

There is increasing evidence that the Earth’s climate is changing, but have the risks and impacts of climate change become mainstream public discourse? The growing popularity of climate-related words and phrases would indicate yes. Usage of the phrase climate emergency was more margin, with over three times the usage frequency of health emergency, the second-ranking emergency. One high profile example of this language development is the change made by the Guardian in its reporting of environmental news, stating that instead of climate change, its preferred terminology to describe the broader impact of climate change would be ‘climate emergency, crisis, or breakdown’.

While dealing with the weather has long been an integral part of doing business, the mainstreaming of climate concerns is translating into increasing regulatory and consumer pressure on businesses to act. Investors, for example, are making the climate more central to their activities; almost 400 investors have signed the Climate Action 100+ Initiative, which is committed to pressuring the largest corporate greenhouse gas emitters to curb emissions and strengthen climate-related financial disclosures. Heads of cities and states as well are increasing their focus on climate change; more than 60 countries and 100 cities around the world have adopted net-zero carbon emissions targets. Central banks and other supervisory authorities are now considering climate change as a risk to financial stability, and have established task forces to enhance the quality of climate- related risk management and transparency. The bottom line is that a wide range of actors are now using climate-specific tools or models to assess climate risk, and this is bringing a massive disruption to the way companies do business.


Recent research finds that a company’s approach to managing climate risk has impact on its ability to raise capital. Between 2012 and 2016, firms that disclosed information on their environmental impact through CDP — a standard-setting organization that supports companies and cities to voluntarily report on their environmental impact — ranked 19 percentiles better than the average firm in their ability to access capital.

There are many unknowns surrounding climate change, and that can cause discomfort. The more detailed and relevant the information, the better investors can look forward, assess risks and opportunities and allocate capital accordingly.

– Canada Pension Plan Investment Board

Investors are increasingly demanding companies to disclose information on their environmental impact. In 2019, a group of 88 investors with nearly $10 trillion in assets publicly targeted hundreds of companies that are not transparent enough about their climate change, water security, and deforestation data. As the impact of climate change has become more commonplace, the investor community is seeking greater disclosure of relevant information, to price in the risks associated with climate risk and reward those firms that mitigate them. Enhanced disclosure helps investors and other financiers to assess a company’s exposure to climate-related risks and the quality of its response to them.

What gets measured, gets managed and what gets disclosed and published gets managed even better.

– Aviva plc

The willingness of companies to disclose climate change-related management activities and greenhouse emissions has grown rapidly in recent years. In 2019, almost 7,000 companies reported their emissions to the Carbon Disclosure Project, twice as many as in 2011. Companies are beginning to identify competitive advantage in voluntary disclosure, because it signals high-quality management teams and enables a greater dialogue between firms and investors on material business risks related to climate change. Companies are also starting to see financial benefit: it is reported that businesses which disclose their emissions data are likely to benefit from a lower cost of capital, saving up to $1.2 million per year in interest payments.


Governments use different policies and regulatory measures to slow the growth of greenhouse gas emissions linked to climate change. Some of these measures have included greenhouse gas emission targets, carbon taxes or cap-and-trade, renewable portfolio and clean energy standards, energy efficiency policies, and fuel efficiency standards. While complying with regulation is rightly viewed to come at some cost, many climate-related regulations are achieving dual outcomes of reducing climate impact and also increasing firm efficiency. In the US, state governments have taken the lead in developing climate policies in the absence of federal action, and each state has established its own mix of policy frameworks. Table 1 below summaries some of the major policies enacted in US states.

The transport sector has been a major focus of emission reduction policies. The EU, the US, China, and India have all formulated specific GHG targets for tailpipe emissions of light-duty vehicles, and have expanded these targets to include heavy-duty vehicles and shipping and aviation sectors as well. US states have passed legislation that offer rebates to purchasers of electric vehicles, and mandate auto manufacturers to make electric vehicles a specified portion of vehicle sales. Electric vehicle and battery technology is reported to require less maintenance than an equivalent petrol or diesel engine vehicle. Technological upgrading resulting from climate regulation in the transport sector offers opportunity to meet emissions targets while also improving transport efficiency.

In Washington state, building related emissions are the state’s fastest growing source of greenhouse gasses and accounted for 27% of carbon pollution in 2015.

Overview of Climate Regulation in US States

Policy type
Target sectors
Implementing US States
GHG emission reduction targets
80%-100% emission reduction target
All sectors
California, Colorado, Minnesota, Florida, Pennsylvania, New Jersey, Connecticut, Massachusetts, New York, New Hampshire, Maine, Rhode Island
50%-79% emission reduction target
All sectors
Washington, Oregon, Illinois, Vermont, Arizona
Less than 50% emission reduction target
All sectors
New Mexico, Michigan, North Carolina, Maryland, Delaware
Carbon pricing (cap-and-trade)
RGGI cap-and-trade
Power plants
New York, Vermont, New Hampshire, Maine, Connecticut, Rhode Island, Maryland, Delaware
RGGI cap-and-trade pending
Power plants
Virginia, New Jersey
Baseline and credit
In-state stationary sources, petroleum distributors and importers, and natural gas distributors
Electric power plants, electricity imports, and large industrial plants
RGGI cap-and-trade, and state specific policies
Fossil fuel-fired power plants with capacity greater than 25MW
Energy mix standards
Voluntary renewable portfolio standard
Electric utilities
Oregon, Montana, Arizona, Colorado, Texas, Minnesota, Wisconsin, Michigan, lowa, Missouri, North Carolina, Michigan, New Jersey, Vermont, New Hampshire, Connecticut, Rhode Island, Maine
Voluntary renewable portfolio standard
Utah, North Dakota, South Dakota, Kansas, Oklahoma, South Carolina, Virginia
Clean energy goal
California, Washington, Nevada, New Mexico, Illinois, New York
Alternative portfolio standard
Pennsylvania, Ohio
Clean energy goal
Energy efficiency policies
Appliance standards
Appliance consumers and appliance producers
Arizona, California, Colorado, Connecticut, Hawaii, Maryland, Massachusetts, Nevada, New Hampshire, New Jersey, New York, Oregon, Rhode Island, Vermont, Washington
Commercial building codes exceeding federal standard
Commercial building owners and developers
California, Nevada, Massachusetts, Florida, Washington
Residential building codes exceeding federal standard
Residential building owners and developers
California, Oregon, Washington, Massachusetts
Decoupling (both electric and gas)
California, Oregon, Washington, Nevada, Minnesota, Wisconsin, Michigan, New York, Pennsylvania, Maryland, Connecticut, Rhode Island, Massachusetts, North Carolina
Decoupling (electric only)
Idaho, Colorado, Ohio, Maine, Vermont
Decoupling (gas only)
New Jersey, Illinois, Georgia, Wyoming, Virginia


Investors are not the only business stakeholder that have been increasingly demanding disclosure of climate information from companies. Major buyers of inputs and raw materials have also requested suppliers to begin disclosing information on the risks associated with climate change. Based on an annual survey of over 1,600 publicly-listed companies from 2014 to 2017, the number of firms engaging with their supply chain on climate risk has increased by 57 percent. Pfizer, for instance, benchmarks its suppliers on the basis of their greenhouse gas emissions and water consumption levels, demanding corrective action when suppliers fall short on their targets. Food multinational Kellogg’s has organized a Sustainability Consortium with its supply chain to advance research and develop standards and tools that aim to improve the environmental, social, and economic impact of its products.

Chronic physical risks, such as rising temperatures or changing rainfall patterns, can alter the yields of agricultural commodity inputs and degrade transportation infrastructure, requiring long-term shifts in sourcing strategies.

The characteristics of modern supply chains — their global geographic reach, specialized inputs that are increasingly Chronic physical risks, such produced in specific locations, and reduced inventories as rising temperatures or from just-in-time production — render them more vulnerable to disruption by climate risks. For example, changing rainfall patterns, during Thailand’s severe flooding in 2011, more than can alter the yields of 14,500 companies reliant on Thai suppliers suffered business disruptions worldwide and total insured losses agricultural commodity were estimated between $15 billion and $20 billion. In inputs and degrade 2017, three category 4 hurricanes destroyed the transportation manufacturing capacity of medical devices in Puerto Rico, producing a national shortage of medical IVs and forcing infrastructure, requiring hospitals across the island to use alternative products and long-term shifts in sourcing suppliers. In 2010, drought in Russia produced wildfires that destroyed an estimated $15 billion worth of crops, and the resulting export-restrictions had the spillover effect of increasing global crop prices.

Climate change presents a wide range of risks to business operation. Some risks result from direct physical changes to the environment. Acute physical risks such as unexpected flooding or water shortages can force the temporary shutdown of a power plant, transportation route, or supplier production facilities, reducing the availability (and increasing the cost) of raw materials and energy supply to a company and its customers. Chronic physical risks, such as rising temperatures or changing rainfall patterns, can alter the yields of agricultural commodity inputs and degrade transportation infrastructure, requiring long-term shifts in sourcing strategies. Workers that are exposed to outdoor temperatures, such as those in construction, agriculture, mining, and manufacturing, will experience declining productivity levels as weather-related impacts increase.

Major Operational Impacts of Increasing Climate Risk

Impact of climate risk
Operational impacts
Increase the cost and variability of cost of production and distribution
Transport costs will rise as climate impacts damage infrastructure, and as regulation increases price of high-carbon fuel sources
Carbon prices will disproportionately impact the transportation industry, which uses over 50 percent of global primary oil production
Resource commodity prices will become more volatile as weather events increase in frequency and severity
Record-breaking temperatures in the US over the summer of 2012 reduced corn supply and increased meat and dairy prices, causing global food prices to rise by 10% that year
Disrupt the speed of delivery
Changes to transport infrastructure resulting from climate changes affect the speed at which suppliers can deliver goods and services
The winter road network is projected to contract by an average 14 percent across the eight polar nations by 2050, and change to the composition of polar ice caps is expected to alter arctic shipping routes
Reduce the quality of goods and services
Changes in climate will affect the quality of raw materials and inputs that rely on temperature, humidity, and other climate factors
In 2014, Cyclone Hudhud diminished the stock of India’s silk worms, and the cocoons that survived were of low quality, damaging luxury fashion supply chains that depend on high-quality silk from India
Increase the uncertainty and magnitude of supply chain disruptions
The increasing magnitude and variability of climate impacts will produce significant uncertainty in terms of the scale and timing of disruption
Bayer’s plant in Texas was minimally affected by Hurricanes Katrina and lke; however, employee homes and communities suffered significant damage, disrupting production


According a survey of S&P 100 companies conducted by the Center for Climate and Energy Solutions, only 28 percent reported that they had done climate assessments, and an even smaller number (18 percent) said they use climate-specific tools or models to assess their risk. In terms of actual action taken, it is reported that companies’ climate responses focus primarily on measures that have short-term cost-saving effect, such as increasing energy efficiency and using more climate-friendly technology and equipment. Few companies are taking longer-term measures, such as purchasing insurance coverage against extreme weather events or setting specific emission reduction targets. According to a survey of European CFOs, only 27 percent of companies have established some form of carbon emission reduction target. One in two companies have not set any target at all.

Climate change may be gradual, but the effects are volatile, meaning a company could become exposed to a large, unexpected hit if it doesn’t understand the changing risks. There’s a cost for inaction


The cost of inaction is starting to grow. As the public cost of extreme weather events rises, communities have started to file lawsuits against fossil fuel corporations to hold them financially accountable for the environmental damage caused by climate change. Currently, these so-called climate liability cases rely largely on research from the Carbon Majors report, which links carbon and greenhouse gas emission to individual emitters. The report reveals that 71 percent of global warming gases could be traced to just 100 companies, the “Carbon Majors”. Improvements in in real-time data collection have provided plaintiffs in climate liability cases with new evidence demonstrating to what extent climate-related events can be attributed to individual sources of emissions. WattTime is a company that developed a system that can produce actual carbon dioxide measurements by combining image feeds from satellites in low-Earth orbits, producing a central data set that is reliable and publicly available. Legal experts report that this technology will make it easier for plaintiffs to establish that power plants are violating their permit limits.

Insurance companies report that climate change makes the historical record of extreme weather an unreliable predictor of current risk. A team of 35 scientists and engineers at Swiss Re who test and update catastrophe models found that decades of torrential rainfall that had long been a part of the model were no longer useful for predicting risk in some regions, because rain now falls so much more heavily and frequently there. Insurance actuaries are incorporating a greater range of outcomes into pricing, and as a result insurance premiums are expected to rise in those regions which are facing greater climate risk. Changing risk probabilities are making some areas uninsurable altogether, or at least so risky that the cost would be prohibitively expensive for insurance buyers. Allianz, one of the world’s largest reinsurers, sold its US retail business, in part because climate change is increasing the risk of losses to certain coastal areas in California and Florida, making insurance no longer viable.


In addition to increased pressure from investors and supply chain partners, businesses also face increased pressure from customers and employees. According to a new global survey by Tandberg, more than half of global consumers representing 1.1 billion people prefer to purchase products and services from a company with a strong environmental reputation. The 2017 Eco Pulse study, an annual survey which gauges consumer spending and behavior, shows that the percentage of people who said they had stopped buying a product based on environmental reputation of a company jumped to 33%, from just 11% the year prior. Workers, too, are demanding increased environmental responsibility from their employers. Eight out of ten workers globally reported that they would prefer to work for an environmentally ethical organization. These findings suggest a strong link between a company’s environmental reputation and its brand value.

According to a new global survey by Tandberg, more than half of global consumers representing 1.1 billion people prefer to purchase products and services from a company with a strong environmental reputation.

In the climate-change context, reputational risk can be considered as the probability of profitability loss following a business’s activities or positions that the public considers harmful. There are many examples of companies whose brand value has suffered as a result of its role in environmental catastrophe. Communities in the Niger delta hit by oil spills continue to pursue legal action against Shell, despite the 55-million-euro settlement awarded to 15,600 people in the region in 2015. A poor reputation on climate can damage investor relationships and make the company’s products less attractive to customers. Volkswagen was found to have disguised the level of emissions from its diesel cars, and even despite the $14.7 million settlement designed to appease vehicle owners, the company’s reputation as a vehicle manufacturer is likely to be affected for decades.

In addition to the ethical reasons for going green, there is a tremendous incentive for companies across the globe to focus efforts on environmental responsibility to attract customers, recruit and retain top talent, and positively affect their external brand reputation.


Consumer groups and nongovernmental organizations are getting more prominence in their ability to measure and compare corporate action on climate change. Environmental activist groups have begun to target the fashion industry in general and Levi Strauss in particular as having an outsized role in the impact of climate change and air pollution across the globe. It is increasingly important for companies to manage the reputational risk that climate change presents.

As of 2019, 525 companies have signed on, including some of the world’s largest multinational corporations such as IKEA, Unilever, Tesco, General Mills, L’Oreal, Walmart, and McDonalds.

Many corporates have found strategic benefits in establishing plans to decarbonize its footprint. It builds reputation, improves visibility, and helps the company benefit from innovation, along with improved perception among investors, employees, and customers. The retailer Kohl’s has been recognized for its efforts to green its operations and reduce emissions. Unilever leads the FTSE Carbon Strategy risk and performance index and has improved its carbon efficiency by 40 percent since 1995.

IBM won a Climate Leadership Award from the EPA for setting rigorous emissions standards for its suppliers. One program that publicly signals a company’s commitment to climate change action is called the Science-Based Targets Initiative, which creates a platform where companies can set targets that align with the Paris Agreement. As of 2019, 525 companies have signed on, including some of the world’s largest multinational corporations such as IKEA, Unilever, Tesco, General Mills, L’Oreal, Walmart, and McDonalds. A number of leading companies have been using their influence to build momentum for Congressional action on climate change, for example by talking to Senators about the need for legislation that puts prices and limits on carbon emissions.


The level of corporate response to climate change tends to differ by industry sector. Resource-intensive firms (utilities, mining, automotive, tourism) are much more likely than non-resource intensive firms (retail, construction, telecommunications) to have established emissions reduction targets and to contribute resources towards managing climate risk.

Industry sectors experience varying degrees of climate risk. Telecommunications or retail firms tend to have a smaller carbon emissions profile than utilities or mining firms, and face less scrutiny from regulators, customers, and investors as a result. Table 3 below evaluates the climate-change risk exposure and downstream impact of a number of industry sectors.

Although the risk for any one company will of course depend on geography, customer mix, and management activity, some of the highest-risk sectors highlighted below represent critical input markets for all sectors of the economy (e.g. power, transportation). As climate-related policy implementation ramps up, and as more corporates respond to increasing pressure to adopt climate-friendly behaviors, market adjustments in these high-risk sectors could change the way in which critical business inputs are produced, distributed and consumed, with wide-ranging consequences in terms of their downstream impact.

Importantly, some of the impacts may result in creating opportunities for companies due to expanded demand for their products. For example, changing weather patterns might lead to changes in crop distribution and impact demand for fertilisers and other agricultural inputs, potentially creating new revenue opportunities. Infrastructure hardening required to avert damage from extreme weather events can provide a boost to materials manufacturing, construction, and general contracting companies. Utility-scale renewable solution, energy storage, carbon capture and sequestration technologies, and other market segments are already expanding to meet help companies address climate-related regulatory requirements.

Impact of Climate Change on Key Industry Sectors, and Downstream Effects

Major risks
Downstream impacts and opportunities
Oil & gas
• Increasing regulations on fossil fuels
• Divestment campaigns by large institutional investors
• Reduced demand for fossil fuels
• Increased investment in carbon capture and sequestration technologies
• Rising temperatures and changing rainfall patterns reduces agricultural yields and composition of supply
• Increased cost of raw materials for beverage and FMCG companies
• Higher and more volatile food prices for consumers
• Increased investment in climate-control products and technologies (e.g. refrigerated cargo)
• Increasing regulations on energy utilities
• Extreme weather events produce higher probability of power shortage/outage
• Increased capital and operating costs for utilities
• Increased investment in renewables and storage products and technologies
• Increased demand for off-grid energy solutions (e.g. captive power)
• Increasing regulations on fuel efficiency
• Extreme weather events produce damage to transport infrastructure, disrupting trade routes
• Increased capital and operating costs for fleet owners
• Increased investment in electric vehicle technology and infrastructure
• Changing trade routes, impacting demand for location-specific trade infrastructure
Financial services
• Increasing likelihood and incidences and of extreme weather
• Increased premiums for insurance holders
• Increased payouts for insurance companies
• Reduced insurance coverage of high-risk geographic locations
Construction and building services
• Increasing regulations on buildings and appliances
• Increasing severity of extreme weather events
• Increased capital and operating costs for building owners
• Increased investment in weather-resistant building products and services
• Increased investment in energy-efficiency building products and services
• Changing disease patterns and population vulnerabilities
• Extreme weather events disrupting supply chains and threatening facilities
• Increased utilization due to higher prevalence of diseases and the impact of catastrophic weather events
• Jeopardized health outcomes
• Increased capital and operating costs


Although developing a systematic approach to climate action can provide companies with operational, reputational, and financial benefits, few companies have done so. The majority of climate action by corporates to date is reactive and focused on short-term rewards and quick wins, although these are important first steps. Fewer corporates have implemented longer-term measures that can create value through cost savings and technological upgrading, and which generates longer-term competitive advantage in an increasingly climate-conscious marketplace. As climate change continues to transform how consumers, producers, and investors evaluate climate risk, companies not only need to measure their exposure to risk and subsequently manage them, but also need to incorporate climate risks — as well as opportunities — into corporate governance processes and strategic planning.

Areas of Engagement and Action Items for Addressing Climate Risk

Tome horizon
Areas of engagement
Action items
Identify climate risk exposure, prioritizing areas of high GHG emissions and risk vulnerability
1. Conduct structured assessment of your supply chain to determine business-critical suppliers and inputs
2. Identify the suppliers and inputs which possess high intensity of GHG emissions
3. Map the suppliers and inputs to illustrate their vulnerability to climate change risks
Set quantifiable, time-bound targets, focused on risk mitigation in identified priority areas
1. Record a baseline measurement of GHG emission and risk vulnerability
2. Put in place a process for tracking and monitoring emissions and risk vulnerability
3. Establish phased targets towards improving emission and climate risk profile
Establish internal corporate governance principles, and set standards with suppliers
1. Position the risk and monitoring framework within defined governance structure, with executive buy-in
2. Work with internal teams improve requirements and processes in procurement of inputs
3. Engage with suppliers to set standards, encouraging suppliers to develop capacity to manage climate risk
Make investments in carbon-clean product or process improvements that have immediate cost savings or revenue enhancement
1. Conduct ROI analysis of a range of potential emission-reduction investments and identify quick wins
2. Establish energy management systems and Green Building initiatives
3. Upgrade/retrofit appliances, vehicles, and other short-term assets with energy efficient technology
Start initiatives with other businesses and stakeholders, focused on collaborative action towards common objectives
1. Adopt a cause focused on conservation and preservation
2. Partner with stakeholders to build resilience of communities to adapt to climate change
3. Investigate regulatory trends, identifying partners with common interests
Identify market opportunities resulting from climate change
1 Develop quantitative climate scenarios and integrate them into the overall business strategy
2. Monitor adjacent markets and develop plans to enter emerging spaces and capitalize on new opportunities


Valentina Fomenko, MBA, PhD
Holly Robertson
Elliot Rasmuson

Climate Readiness Services

As companies address the disruptive changes posed by climate change, we help corporate decision makers and investors reduce their risk exposure and capitalize on new market opportunities.

We work with companies to fully integrate climate concerns into their short- and long-term strategy, governance, risk management, financial planning, and other key organizational processes.

We support our clients in preparing climate disclosure reports, developing emission reduction targets, engaging stakeholders, monitoring regulatory trends and market developments, and developing comprehensive plans of climate action.


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