Smart money eyes climate change

Meteorologists aren't the only ones interested in weather patterns: Financial analysts are calculating economic impact.

While no one is certain of the future effects of global warming, many businesses are already placing their bets.

Companies in a range of industries are starting to figure in the business impact of climate changes stemming from global warming, according to experts.

The calculations go along two lines, depending on the industry: Corporations are either mitigating risk associated with climate changes or seeking out business opportunities in fields such as clean energy.

Faced with a higher frequency of storms, and more severe ones, insurance companies are re-examining their exposure to risk and, in some cases, cutting off policies.

But there's an upside, too: Investors are flocking to so-called clean, or green, technologies that cut down on greenhouse gas emissions, notably carbon dioxide. The motive may not be unselfish, however.

Corporations "recognize there are tangible risks and tangible opportunities," said Fred Wellington, a senior financial analyst at think tank World Resources Institute. "It's not out of the need to be a socially responsible corporation."

There continue to be political debates on how to address climate change and global warming. But the businesses now adjusting for climate change are motivated entirely by financial reasons, said Wellington, who advised Citigroup on a June report entitled "Investing in Solutions to Climate Change."


"Climate change and policies to combat its impacts are going to fundamentally change the energy makeup of a lot of economies. As the shift away from fossil-based to more renewables happens, companies will win or lose depending on how that shift occurs," he said.

Interest in climate-related business strategies is growing rapidly, but so far activity is limited to forward-looking companies within different industries, said Wellington.

Cash in cutting carbon
General Electric's initiative is a high-profile example of a company seeking business opportunities in a range of green technologies, including solar and wind, water purification and energy efficiency.

The products the global manufacturer is developing are a deliberate attempt to capitalize on environmental problems, including climate changes, according to the company.

"That (Ecomagination initiative) wasn't some epiphany," said MIT physics professor Ernest Moniz, the former undersecretary of the Department of Energy, who spoke at an MIT conference on energy in May. "Look at what they've been acquiring the last 10 or 15 years....They put together a portfolio to make money in a carbon-constrained world."

Services industries are taking part as well. Goldman Sachs last fall published an Environmental Policy Framework to "find effective market-based solutions to address climate change, ecosystem degradation and other critical environmental issues."

The plan calls for a range of steps, from cutting down on emissions from its own operations to creating investment research that figures in the financial impact of environmental factors.

Reinsurance giant Swiss Re has been calculating the effect of climate change on its business for more than 10 years. The company employs three climatologists, including a paleontologist to study ice cores, which shed light on historical weather patterns.

As a company that provides insurance to the insurance industry, Swiss Re is the "canary in the mine shaft with regards to climate change" because it does long-term risk analysis, said Chris Walker, managing director and head of sustainable business development at Swiss Re.

"We do believe the climate is truly changing and that it could potentially disrupt how we do business, which is based on a predictive model," said Walker.

If, for example, so-called 100-year hurricanes occur every 25 years because of global warming, firms like Swiss Re will have a harder time absorbing and pricing risks, he said.

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