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Executive Perspectives

EXECUTIVE PERSPECTIVE: This is not a test

Antony Currie

20 Nov 2018

“PG&E’s massive stock-price hit and its potential liquidity crunch from a climate-related disaster may look extreme today.”

Originally published on BreakingViews.

PG&E’s woes prove climate change already poses a clear and present danger. The California utility may be to blame for the wildfire that has claimed at least 48 lives in the past week. Its value has almost halved in that time and it may be at risk of running out of cash. Yet most investors and companies still treat a warming planet as a longer-term risk.

PG&E is already on the hook for some of last year’s wildfires – though the Golden State in September agreed it could pass on some of the cost to consumers. Then on Wednesday the $13 billion electricity supplier said it suffered an outage on Nov. 8, the same day the so-called Camp Fire started in Butte County. Moreover, its insurance might not cover its liabilities from the conflagration and PG&E has maxed out its credit lines. Shareholders quickly wiped as much as a quarter off the stock’s value.

Wildfires aren’t new, but climate change has made them more powerful. Evaporation and a drop in water supply make foliage drier. Forests are also overgrown, with more dead trees, which makes for a dangerous accelerant. Other threats are also increasing, including water scarcity, floods and pollution. Hurricane Florence caused an estimated $18 billion in damage when it hit North Carolina in September, and could leave insurers on the hook for as much as $5 billion in claims. The overall economic impact is likely to be much higher.

Some 78 percent of S&P 500 companies publish an annual sustainability report, according to research unveiled on Wednesday by the Investor Responsibility Research Center Institute and the Sustainable Investments Institute. But just 14 firms fully integrate environmental risks into their financial analysis, and a mere 12 have their assumptions vetted by outside sources.

Investors, too, aren’t fully up to speed. The United Nations’ Principles for Responsible Investing and nonprofit investor climate-disclosure group CDP have each signed up money managers responsible for more than $80 trillion of assets. But investors often focus more on finding new products to appeal to environmentally minded clients – or rely too much on stock-screening tools that depend heavily on companies’ own inadequate disclosures.

PG&E’s massive stock-price hit and its potential liquidity crunch from a climate-related disaster may look extreme today. But if companies and investors don’t buck up, it’s likely to be a harbinger of greater doom.

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