“Our latest research shows that 60% of S&P500 companies, with a market capitalisation of $18 trillion, hold assets that are at high risk of at least one type of climate-related physical event. It’s critical that companies fully understand their impact and dependency on ecosystems as well as the impact of a changing climate on their business operations. Trucost recently launched its Climate Change Physical Risk Analytics with the aim of helping companies and investors understand their exposure to a range of physical risks at the asset level including floods, droughts, wildfires, heatwaves and extreme weather events.”

The Trucost Climate Change Physical Risk dataset

While the extent and effectiveness of the global response to climate change remain uncertain, one thing is very clear: Companies and investors must prepare for a range of possible outcomes with diverging transition and physical risks.

This need for determined action to reduce emissions and limit the effects of climate change poses important transition risks for companies and investors through regulation, changing market dynamics, and technology, among other factors.

As it stands, companies in the benchmark S&P 500 Index own physical assets across 68 countries globally—and 60% of these entities (with a market capitalization of $18 trillion) hold assets that are at high risk of at least one type of climate-change physical risk. And while corporate-level resilience to both transition and physical risk varies greatly within and across sectors, S&P Global data show that heatwaves, wildfires, water stress, and hurricanes linked to increasing average global temperatures represent the biggest physical risks for companies in the S&P 500.

S&P Global Ratings' look-back reviews published in 2017 and 2018 show that climate risk materially influenced less than 10% of our rating actions in recent years. Recent climate-related rating actions have typically stemmed from either physical risks, such as the 2018 wildfires in the case of Pacific Gas & Electric in the U.S. and Hurricanes Harvey, Irma, and Maria affecting reinsurers and local governments in 2017; or disruption to the operating environment in certain sectors. Current global warming trends suggest that the materiality of climate risk for ratings is only likely to increase in the future. The longer the delays in addressing current trends in climate change, the more likely we could see economic and social disruptions, due both to higher physical risks and the need to transition to a low-carbon economy at a faster pace.

Of the eight major economies that account for 67% of the world's greenhouse gas emissions, only Europe is gearing up to extend its Paris Agreement commitment after the European Parliament announced a climate emergency Thursday.

Incoming European Commission President Ursula von der Leyen is set to call for EU member states to cut carbon emissions by at least 50% below 1990 levels by 2030, up from a current 40% reduction target.

But ahead of the COP25 climate talks in Madrid, climate scientists say around 75% of current national plans are inadequate to put the globe on a path that meets the Paris Agreement's aim of limiting global warming to 1.5 to 2 degrees Celsius.

Policy changes introduced as economies adapt to climate change could wipe between $1.6 trillion to $2.3 trillion off the value of major global companies by 2025, and investors need to reflect that policy risk in their strategies, according to research conducted for the U.N.-backed group, Principles for Responsible Investment.

According to an analysis by consultants Vivid Economics and Energy Transition Advisors, policy changes would reduce by 3.1% to 4.5% the value of companies on the benchmark global equity MSCI ACWI index, or the equivalent of the total value of the largest 12 to 33 companies on the London Stock Exchange's FTSE100.

Since S&P Global Ratings' most recent review on the matter in December 2018, the need for climate change adaptation projects hasn't abated. Indeed, more people are noticing. We believe the recent surge in damage from extreme climate events has significantly increased the attention of public authorities on the need for investment in this area. According to the reinsurer Swiss Re, 2017-2018 insured losses from natural catastrophes, including climate related events, were $219 billion, the highest 24-month figure on record. In total, economic losses from natural catastrophes totaled $497 billion, with a further $40 billion during the first half of 2019. This implies uninsured losses from natural catastrophes of approximately $280 billion in 2017 and 2018 alone.

As more and more companies and investors conclude that sustainable practices make for sustainable returns, the assessment of corporations’ environmental, social, and governance (ESG) footprints has moved from a simple measure of corporate responsibility to an investment proposition. While this general focus on ESG policies is undeniably beneficial, companies today are presented with the additional challenge of actively planning for climate risk. With a growing consensus around climate science, companies and investors must plan for a number of different scenarios, depending on the extent and impact of global climate change. However, an absence of shared terminology, benchmarks, and policies threaten to stymie investors and companies as they attempt to account for climate risk.

Global infrastructure spending has remained resilient in an environment of financial instability, underpinned mainly by interest from private sector investors. Private investors seeking long-term, stable returns are keen to fund infrastructure projects ranging from energy, to transport, to water infrastructure. These investors are providing support to governments facing a growing infrastructure funding gap. Yet, the sector is now awakening to the threats and opportunities that sustainability brings to realizing this long-term source of finance. Long-term climate risks are unlikely to leave any sector untouched as governments worldwide seek to maintain warming below 1.5 degrees Celsius under the 2015 Paris Agreement. This may force infrastructure projects to address energy use concerns, particularly as urban infrastructure consumes approximately two-thirds of global energy. Further, concerns over the recoupling of resource consumption and economic growth continue to grow. This adds pressure to address the resource-intensity of infrastructure often associated with the "take, make, and dispose" model under the linear economy.

Insurance coverage for some risks is becoming rarer and more costly as climate change alters the risk landscape, according to Zurich Insurance Group AG's chief risk officer.

Speaking to S&P Global Market Intelligence following the release of the World Economic Forum's 2020 Global Risks Report, Peter Giger said certain perils are becoming increasingly expensive, and that while those price increases are justifiable, they are hitting communities affected by climate change.