Water Insecurity and Climate Risk: Investment Impact of Floods and Droughts

Quintin George Rayer, Karsten Haustein, Pete Walton

    Research output: Chapter in Book/Report/Conference proceedingChapterpeer-review

    4 Citations (Scopus)

    Abstract

    Concerns about water security often inform climate risk-related decisions made by environmentally focused investors (Porritt, The world in context: Beyond the business case for sustainable development. HRH The Prince of Wales’ Business and the Environment Programme, Cambridge Programme for Industry, 2001; Stern, Stern Review executive summary. New Economics Foundation, 2006). Yet, potential liabilities for damage caused by extreme flood and drought events linked to global warming present risks that are not always reflected in share prices (Krosinsky et al., Evolutions in sustainable investing: Strategies, funds and thought leadership. John Wiley & Sons, 2012). Considering the highly destructive nature of such events, we query whether companies, or specific sectors, could and should be held at least partially liable for their emission-releasing business activities. Recent articles (Rayer & Millar, Citywire Wealth Manager®, (429), p. 36, 2018a; Rayer et al., Ecological, societal, and technological risks and the financial sector, Palgrave Macmillan, pp. 39–68, 2020) estimate that under a hypothetical climate liability regime, North Atlantic hurricane seasons might increasingly generate 1–2% losses on market capitalizations (or share prices) for the top seven carbon-emitting, publicly listed companies. In this chapter, we extend the concept of the climate liability regime to estimate the impact of global flood- and drought-related damages on the share prices of nine fossil-fuel firms (including the seven mentioned by Rayer et al. [Ecological, societal, and technological risks and the financial sector, Palgrave Macmillan, pp. 39–68, 2020]). Following Rayer et al. (Global warming and extreme weather investment risks (abstract) [Conference session], 2019; Ecological, societal, and technological risks and the financial sector, Palgrave Macmillan, pp. 39–68, 2020), we use incremental climate impacts and historical corporate emissions to estimate that climate change-related global flood and drought damages for the period of 2012 to 2016 amount to approximately 2–3% of the top nine carbon-emitting companies’ market capitalizations. Quantifying impacts from extreme weather events increase salience and serve as an example of how science can identify and address the important business questions, pertinent to both investors and companies that arise from a changing climate.
    Original languageEnglish
    Title of host publicationPalgrave Studies in Sustainable Business In Association with Future Earth
    EditorsThomas Walker, Dieter Gramlich, Kalima Vico
    Place of PublicationCham
    PublisherPalgrave Macmillan
    Chapter6
    Pages157-188
    Number of pages32
    ISBN (Electronic)9783030776503
    ISBN (Print)9783030776497, 9783030776527
    DOIs
    Publication statusPublished - 21 Aug 2021

    Publication series

    NamePalgrave Studies in Sustainable Business in Association with Future Earth
    ISSN (Print)2662-1320
    ISSN (Electronic)2662-1339

    Bibliographical note

    Q139
    Publisher Copyright:
    © 2021, The Author(s), under exclusive license to Springer Nature Switzerland AG.

    Keywords

    • Climate change
    • Extreme weather events
    • Climate liability regime
    • Market capitalization
    • Responsibility
    • Sustainable investing

    ASJC Scopus subject areas

    • Earth and Planetary Sciences(all)
    • Economics, Econometrics and Finance(all)

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