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Climate change is one of the most serious issues facing the planet. Scientific
evidence shows that temperature changes are likely to have profoundly nega-
tive consequences for human society, the global economy and the world™s nat-
ural systems. This poses risks and opportunities to which investors and
companies must respond.
The current situation is that it is generally accepted within the scientific
community that the planet is warming. The role that human activity plays in
this warming remains more controversial. An address by Kofi Annan, Secretary
General of the United Nations, mentions:
Climate change is not just an environmental issue, as too many people still believe. It is
an all-encompassing threat.
It is a threat to health, since a warmer world is one in which infectious diseases such
as malaria and yellow fever will spread further and faster.
It could imperil the world™s food supply, as rising temperatures and prolonged drought
render fertile areas unfit for grazing or crops.
It could endanger the very ground on which nearly half the world™s population live “
coastal cities such as Lagos or Cape Town, which face inundation from sea levels rising
as a result of melting icecaps and glaciers.
Chapter 20 “ Climate change “ air pollution risk 519



All this and more lie ahead. Billion-dollar weather-related calamities. The destruction
of vital ecosystems such as forests and coral reefs. Water supplies disappearing or tainted
by salt-water intrusion. (At the UN Climate Change Conference in Nairobi, Kenya, on the
15 November 2006)

Human emitted greenhouses gases are viewed as being responsible for con-
tributing to an effect called global warming, which in turn is seen as causing
climate change and increased turbulence and unpredictability in weather pat-
terns. Recent reports highlighting these issues as a critical one for society and
therefore directly and indirectly for businesses are as follows:
In the Lehman Brothers report entitled The Business of Climate Change:
Challenges and Opportunities, they state that the pace of a company™s adap-
tation to climate change will influence whether, over the next several years,
it survives and prospers or withers and quite possibly dies;
The UK ˜Stern™ report on the Review of the Economics of Climate Change
published at the end of October 2006 estimates that the costs of doing noth-
ing about climate change are:
£3 680 000 000 000 (£3.68 trillion) in damages; the do nothing scenario
means 5“20% of the global economy will be at risk;
Up to 200 million extra refugees;
Up to 40% of species lost; and
Water shortages for 1 in 6.
There will be sea level rises, melting glaciers, increased storm severity and
droughts. This means increased market forces of taxation, more green power,
etc. It was also announced there will be a climate change bill. Some commen-
tators say the signs are visible across the United States, according to some
experts, who point to an increase in tornadoes, brushfires, hailstorms, hurri-
canes and droughts. The author Sir Nicholas Stern, head of the UK govern-
ment™s Economic Service and former chief economist at the World Bank,
said, ˜We can grow and be green.™ A 1% average increase in prices is needed
in order to save 5“20%. The burden of CO2 cuts should be in the developed
world. The President of the Maldives, His Excellency Maumoon Abdul
Gayoom, is so alarmed that his country is soon to be overwhelmed by the
ocean that he will be sending this book to all 193 heads of state in the world.
Stern also said:
This is a doubly inequitable process as it™s the rich countries who are responsible for 75
percent of the greenhouse gases that are up there and it™s the poor countries that will be
hit earliest and hardest. (˜India will suffer most due to climate change™ “ Stern, Planetark,
Reuters, India: 7 December 2006)

A survey of more than 33 000 people from 30 countries across the world finds
that in each country polled, a large majority of the survey respondents believe
that climate change is a serious problem. The poll was conducted by
GlobeScan and WorldPublicOpinion.org from October 2005 to January 2006:
˜Trend “ 30-country poll finds rising concern over global warming™, Insurance
Journal (04/25/2006);
Part E “ Case Studies of Business Risks
520



A resolution that acknowledges the harmful effects of greenhouse gases on the
climate has cleared the US Senate. The resolution states that greenhouse gases
are directly responsible for the inordinate increase in the earth™s temperature and
thereby will likely bring about rising sea levels (Senate Resolution Addresses
Global Warming Claims (08/05), volume 53, number 8, p. 10);
EU Environment Commissioner Stavros Dimas told a group of British MPs in
London on 11 January:
It is clear that the fight against climate change is much more than a battle. It is a world war
that will last for many years ¦ It is like a war because to reduce emissions something very
like a war economy is needed. (http://www.wbcsd.org/includes/getTarget.asp?type DocDet
&id MjIzNzg)

The US Climate Change Science Program (CCSP) has released a new study that
examines how human activity may have influenced global warming. Titled
Temperature Trends in the Lower Atmosphere: Steps for Understanding and
Reconciling Differences, the report addresses some of the obstacles that have
stood in the way of understanding the root causes in atmospheric changes (˜US
report on climate change finds “substantial human impact”™, Insurance Journal
(05/04/2006));
A study, Climate Change and Insurance: An Agenda for Action in the United
States, was issued by Allianz Group, one of the largest insurance providers in
the world with operations throughout the US, and World Wildlife Fund
(WWF). The report notes that, climate change has the potential to signifi-
cantly alter and intensify destructive weather patterns in the US, leading to
increased flooding, forest fires and storm damage; and
The UN™s Intergovernmental Panel on Climate Change (IPCC) 4th Assessment
Report entitled Climate Change 2007: The Physical Science Basis has been
compiled by 130 leading climate change scientists based on the work of thou-
sands of scientists. The report states that it is 90“99% certain that human
activities are causing warming in the climate and that further emissions of
greenhouse gases will accelerate global warming. It notes that:
˜Warming of the climate system is unequivocal, as is now evident from
observations of increases in global average air and ocean temperatures,
widespread melting of snow and ice, and rising global mean sea level™;
It also claims that positive feedback effects caused by the oceans and
forests becoming less adept at absorbing carbon as temperatures rise could
drive temperatures still higher; and
The report concludes that temperatures will probably increase by between 1.8
and 4o C by 2100, though they could climb by as little as 1.1o C and as much as
6.4o C, which would result in catastrophic effects such as major droughts and
sea level rises.

A review of the main trends
Political pressure is growing:
In his address to the World Economic Forum US President George Bush
described climate change as a ˜serious issue™ and promised to cut US gasoline
Chapter 20 “ Climate change “ air pollution risk 521



consumption by 2017 in favour of alternative fuels like corn-based ethanol.
Dan Esty, director of the Yale Centre for Environmental Law and Policy, said
Bush had taken ˜an important first step™ (˜Davos leaders challenge Bush to be
bolder on climate™, reported in the Agence France-Presse (AFP), 24 January
2007);
Stakeholder pressure is growing:
Increase stakeholder activism on the risks “ an example is the Carbon
Disclosure Project (CDP) which has 225 signatory investors controlling tril-
lions of dollars in assets, with the aim to increase greenhouse gas emission
reporting. See the stakeholder analysis below for more details;
The Institutional Investors Group on Climate Change (IIGCC) has launched
an ˜Investor Statement on Climate Change™ which was signed by institu-
tions managing assets worth more than £850 billion. The signatories have
pledged to use their collective financial size to encourage companies and
governments to act to reduce global greenhouse gas emissions; and
The financial community is expressing concerns about these emissions
and the risks associated with air pollution, and in particular global warm-
ing. Clear reporting on emissions and pressure on larger companies to make
their supply chain more efficient is necessary. The UK™s Local Authority
Pension Fund Forum is also attending the AGMs of several FTSE100 com-
panies to press them to report on their carbon emissions. The Associ-
ation of British Insurers (ABI) has announced that climate change claims
have already doubled from 1998 to 2003 (to more than £6 billion), and that
claims could treble in the future, pushing up premiums (The Observer, 6
June 2004).
Weather extremes will increase according to the Intergovernmental Panel on
Climate Change (IPCC), drawing on scientific advice from around the world,
both drought and floods could be more common due to global warming (see
below for further details);
Global warming is threatening the planet™s biodiversity, particularly migra-
tory species like birds and marine animals, and species loss is expected to
increase;
Greenhouse gas (GHG) emissions trading will take on greater importance;
The planetary climate will warm over the next several decades, resulting in
sea-level increases of some unknown magnitude;
Increased taxation of GHGs. An example is that France is to push coal and
carbon taxes in support of the Kyoto Protocol;
Legal actions:
The US Supreme Court considered its first global warming case in November
2006, known as Massachusetts vs EPA. This case was brought by a dozen US
states and 13 environmental organisations against the US Environmental
Protection Agency. The plaintiffs argue that the greenhouse gas emissions
from cars, trucks and factories should be regulated by the US government.
The Supreme Court is expected to rule on this case by the middle of next year
(˜Supreme Court hears first global warming case™, Planetark, Reuters USA: 30
November 2006);
Part E “ Case Studies of Business Risks
522



Business pressure is growing:
The chairman of the Lloyd™s insurance market said governments and busi-
nesses must act now against climate change, and the United States needs a
bigger public debate about its risks (˜Lloyd™s boss demands action on cli-
mate change™, AFP, 12 January 2007);
The business community is also concerned as rising energy prices are ˜set
to hit company profits™ (analyst™s warning in the Financial Times, 4 August
2004); and
Ten major US businesses have joined with four US environmental organ-
isations to form an unprecedented alliance “ the United States Climate
Action Partnership (US-CAP) “ and issue a joint report, A Call to Action
(available at http://action.environmentaldefense.org/ct/J1_p_741hmua/).
They are calling for the federal government to pass strong national legisla-
tion to cut global warming pollution. The companies involved include:
Alcoa, BP America, Caterpillar, Duke Energy, DuPont, Florida Power
and Light, General Electric, Lehman Brothers, Pacific Gas & Electric and
PNM Resources. The NGOs involved are: Environmental Defense, the
World Resources Institute, Pew Center on Global Climate Change and
Natural Resources Defense Council.




The trends for the climate are that the UN™s Intergovernmental Panel on
Climate Change (IPCC) 4th Assessment Report highlights the following
impacts from global warming and climate change:

* The main result is that there is evidence to suggest a total net anthro-
pogenic effect by humans on the heating of the planet;
* Eleven of the last 12 years (1995“2006) rank among the warmest years
in the instrumental record of global surface temperature (since 1850);
* Widespread decreases in glaciers and ice caps have contributed to sea
level rise;
* Global average sea level rose at a rate of 1.8 mm per year from 1961 to
2003. The rate was faster from 1993 to 2003, about 3.1 mm per year. The
total 20th century rise is estimated to be 0.17 m;
* Average Arctic temperatures increased at almost twice the global aver-
age rate in the past 100 years;
* More intense and longer droughts have been observed over wider areas
since the 1970s, particularly in the tropics and subtropics;
* Significantly increased rain/precipitation has been observed in eastern
parts of North and South America, northern Europe and northern and
central Asia; and
* There is observational evidence for an increase of intense tropical cyclone
activity in the North Atlantic since about 1970.
Chapter 20 “ Climate change “ air pollution risk 523



The likelihood that trends have occurred due to human pollution is as follows:


Phenomenon and direction of trend Likelihood that trend occurred in late
20th century (typically post-1960)

Warmer and fewer cold days and nights over most Very likely
land areas
Warmer and more frequent hot days and nights Very likely
over most land areas
Warm spells/heat waves. Frequency increases Likely
over most land areas
Heavy precipitation events. Frequency (or Likely
proportion of total rainfall from heavy falls)
increases over most areas
Area affected by droughts increases Likely in many regions since 1970s
Intense tropical cyclone activity increases Likely in some regions since 1970
Increased incidence of extreme high sea level Likely
(Extract from the IPCC 4th Assessment Report)



The scale of the problem
These results have been compiled from the merging of the two separate cat-
egories addressed in Chapter 19, which are Air Pollution from production and
transportation.
Research and analysis into the risk of air pollution from production indi-
cates that:

Air pollution emissions from production and transportation-related risk is an
average of 0.9% of market value of the top 500 EU and US companies. The
majority of this risk exposure is from greenhouse gas-related emissions; and
This risk exposure has been reduced from 1.4% of market value by good risk
management techniques (the risk reduction/management factor).

Sectors particularly likely to be affected include: utilities; integrated oil and
gas; mining and metals; insurance; pharmaceuticals; building and construc-
tion; and real estate.
It is estimated that the worst performer could lose 25% of its earnings due
to regulatory compliance costs and the best could make a revenue addition of
11% to turnover, according to the Carbon Disclosure Project analysis of 2000
companies: www.cdproject.net
Air emissions are a major cause of air pollution, and in particular greenhouse
gases are the major cause of climate change. Historically this issue has period-
ically made the headlines, with a tax on coal helping Sir Christopher Wren com-
plete St Paul™s Cathedral and the great London smog of the 1950s leading to some
of the first pollution control legislation in the world.

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