Global Warming and Extreme Weather Investment Risks

Environmentally focused investors often consider climate risks (Porritt, The world in context: Beyond the business case for sustainable development. Cambridge: HRH The Prince of Wales’ Business and the Environment Programme, Cambridge Programme for Industry, 2001, Stern, Stern review executive summary. London: New Economics Foundation, 2006); however, potential liabilities for damages from extreme weather events due to emissions from carbon-intensive sectors present risks that may not be reflected in current share prices (Krosinsky, Robins, & Viederman, Evolutions in sustainable investing: Strategies, funds and thought leadership. Hoboken, NJ: John Wiley & Sons, 2012). Given the devastation of the 2017 Atlantic hurricane season, it is worth asking: how close are we to some companies or sectors being held liable, at least partially, for their activities around emissions? The answer may be that this is closer than many expect. The evolving field of extreme weather event attribution serves as a good example of how new science can raise important thought-provoking questions regarding the appropriate actions of both investors and companies under a changing climate and answer them with increasing confidence. In recent articles, Rayer and Millar (Investing in extreme weather conditions. Citywire Wealth Manager (429), 36, 2018a; Hurricanes hit company share prices. Citywire New Model Adviser (596), 18, 2018b; Physics World, 31(8), 17, 2018c) estimated that the top seven carbon-emitting publicly listed companies, under a hypothetical climate liability regime, might increasingly see around 1–2% losses on their market capitalisations (or share prices) from North Atlantic hurricane seasons. This chapter gives a comprehensive exposition of how that estimate was arrived at, as well as clarifying how it was quantified. Related aspects from a physical point of view are provided, with an associated general overview of the current state of the related science of climate change, alongside a focus on extreme weather events.