Special Report:
New Guides to Physical Risks from Climate Change

Released in May 2012 and developed by Calvert Investments working with Oxfam America and Ceres, Physical Risks from Climate Change: A guide for companies and investors on disclosure and management of climate impacts,  focuses on companies in the agriculture, food and beverage, apparel, electric power, insurance, mining, oil and gas, and tourism sectors -- all of which are considered to be highly vulnerable to climate impacts.

More recently, Calvert Investments and other leading companies from the Partnership for Resilience and Environmental Preparedness (PREP) released a first-of-its-kind guide for businesses to assess and prepare for the risks and opportunities posed by climate change, entitled, Value Chain Climate Resilience: A guide to managing climate impacts in companies and communities.

Physical climate risks are very real for investors

Climate change has already started to cause a wide range of physical effects – with serious implications for investors and businesses.  While weather variability and extremes have always existed, the science shows that extreme weather events are becoming more frequent and intense, that more incremental climatic changes are already underway, and that the impacts of climate change are expected to grow more severe over the coming years and decades.  Climate impacts such as increasing temperatures, rising sea levels, changing weather patterns, and more frequent or intense droughts, floods, and storms can pose serious challenges for company facilities, supply chains, employees, current and potential customers, and the communities on which companies depend.

The year 2011 set new records for economic losses and insured losses caused by natural catastrophes, with extreme weather events accounting for 90% of the disasters and 8 of the 10 most costly, causing overall losses of more than $148 billion and insured losses of more than $55 billion.

Specific impacts include:

  • More than 160 companies in Thailand's textile industry were harmed by the 2011 floods, stopping about a quarter of the country's garment production.
  • Agribusiness and food company Bunge reported a $56 million quarterly loss in its sugar and bioenergy segments, driven primarily by droughts in 2010 in its main growing areas.
  • Electric power company Constellation Energy experienced reduced quarterly earnings due to the record-setting 2011 heat wave in Texas that forced it to buy incremental power at peak prices.
  • Insurance company Munich Re received claims worth more than $350 million from the 2010-2011 Australian floods, contributing to a 38 percent quarterly profit decline.

Adaptation presents real opportunities for forward-thinking companies

The United Nations defines climate change adaptation  as "initiatives and measures to reduce the vulnerability of natural and human systems against actual or expected climate change effects." Calvert believes that climate change mitigation (efforts focused on greenhouse gas emissions reductions) and climate adaptation must move forward together; and that adaptation is a way for companies and investors to not only reduce risks, but grasp the opportunities climate change presents. Competitive companies must not only commit to mitigating climate change by reducing their carbon footprint, but also must also strategically plan for and adapt to climate change impacts.

Climate adaptation is gaining traction as a pragmatic way to address the impacts of climate change by companies, governments, and, we hope, investors—an opportunity for progress at a time when policies intended to set a price on carbon have lost political viability in the U.S. Yet, the business community and policy-makers alike are finding common ground around climate adaptation, if not around mitigation to the extent that we have advocated.  Climate adaptation also touches on other key sustainability issues, including disproportionate impacts on poor communities and countries in ways that raise human rights as well as environmental and economic issues.

Calvert's role in driving change

Calvert is a founding member of the Partnership for Resilience and Environmental Preparedness (PREP), a coalition of partners including Starbucks, Swiss Re, Entergy, and Levi Strauss & Co., and Oxfam America, formed to address climate change impacts on businesses and communities. Calvert is also actively encouraging policy makers to make sound policy decisions that encourage resilience-building and preparation for climate change both here and abroad.

We drive investments towards adaptation and resilience-building throughout the investment portfolio of Calvert’s sustainable and responsible investment (SRI) funds. Through Calvert Signature Strategies®, we encourage companies to develop forward-thinking climate strategies that address risks and opportunities from climate change. Earlier this year, Calvert filed a proposal with the J.M. Smucker Company, owners of Folgers and other coffee brands, asking it to manage risk to its coffee business from the physical impacts of climate change. Calvert has also had productive engagement on climate risk disclosure with Dr. Pepper/Snapple, Yum!Brands, and Hanesbrands after we filed shareholder resolutions with those companies. Our shareholder proposal on climate risk and water at apparel maker Fossil earned 31% shareholder support in May of 2012. The Calvert Solution Strategies® offer a unique opportunity to invest in adaptation through companies focused on alternative energy and water engineering and infrastructure, water conservation and re-use, and water treatment technologies. Finally, investments through our Special Equities program help spur innovations such as sustainable yield enhancing biopesticides and soil moisture monitoring for farmers.

Corporate leaders and sustainable investors will find these reports useful. For corporate leaders, the disclosure guide provides detailed checklists and steps companies should take to assess, manage and disclose the physical risks they face because of climate change. At the same time, Value Chain Climate Resilience will inform companies in greater detail how climate change could affect operations and what can be done now to prepare, while also providing examples of steps leading companies are already taking to address the risks caused by increasingly severe and frequent weather events and other climate threats. For investors, both reports may serve as primers with numerous real-world examples of physical risks and strategies for adaptation.

Calvert intends to use these guides to inform its investment research and advocacy efforts. We plan on sending the reports to a number of key corporations held in the fund portfolios in an effort to encourage strategic management of climate change risks and opportunities.

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