By Paul Roberts / For The Herald
The heat dome that enveloped much of the U.S. last week is yet another reminder of the impacts climate change is having, and will continue to have, on our world.
Global warming increases the frequency, intensity and cost of weather events such as heat, hurricanes, storms, floods, droughts and wildfires as well as sea level rise, a non-weather event directly caused by climate change. Climate change is a threat multiplier, supersizing events making them stronger, longer and more damaging and costly.
According to the National Oceanic and Atmospheric Administration, in 2023 there were 28 separate “billion-dollar” weather and climate disasters — events resulting in damages of at least $1 billion — the highest annual disaster count ever recorded. The total cost in 2023 was $94.8 billion. These events will continue to grow in numbers and cost until there is a reversal in carbon pollution. The Associated Press reported on a study in the journal Nature which concluded that climate change will reduce future income by 19 percent and cost a whopping $38 trillion by 2049, 25 years from now.
As these costs ripple through the economy, increasing as the planet warms, they will impact all sectors (e.g. energy, transportation, agriculture and building). Accounting for these costs is a growing concern for insurance, re-insurance, business, banking, legal, labor and government actors. They are all experiencing the trends, costs and consequences of a warming world.
The process to measure these impacts is known as ESG — Environmental, Social and Governance — aka triple bottom line economics. ESG accounts for what are known as external costs to businesses, governments and society resulting from burning fossil fuels and global warming.
Writing for Forbes, University of Washington professors Nives Dolsak and Aseem Prakash describe ESG as efforts by business and governments to develop metrics assessing costs and risks in addition to profits. They write, “The theory is that decarbonization requires substantial changes in how businesses function. The ESG metric is a game changer because it recognizes firms for their pro-environmental efforts.”
Accounting for climate risks is a growing focus of rating agencies such as Moody’s, S&P (formerl Standard & Poor’s) and Fitch Ratings. Moody’s has acquired interests in consulting firms that monitor and measure climate risks and participated in geographic analyses broken down by counties throughout the U.S. They have also produced a net-zero assessment; a sector-by-sector economic risk assessment. Fitch created a climate valuation system that tracks the credit worthiness of corporate sustainability actions. S&P is building out its energy transition assessment with a substantial industry-wide petrochemical warning.
The Institute for Energy Economics and Financial Analysis (IEEFA) says that: “Climate change is now its own risk category for credit rating agencies because of regulatory, legal, economic, financial, political and social changes that affect short and long-term corporate bottom lines. Tom Sanzillo, IEEFA’s director of financial analysis, said: “Credit agencies are issuing an overdue powerful warning about climate change along with reliable tools to measure progress.”
Climate change presents significant costs, risks and liabilities for all sectors of the economy. The insurance, finance and legal community are driving changes across the economy. These changes are essential to incentivize sustainability and move the economy toward zero emissions of greenhouse gases.
For corporations and businesses extreme heat and weather events can disrupt supply chains, manufacturing processes, materials, product delivery and labor. Some labor classifications (e.g. construction, agriculture and utilities) are particularly vulnerable to heat as evidenced by the latest heat dome, and these vulnerabilities run across all segments of the economy.
Corporations have a fiduciary responsibility to their shareholders to disclose risks that will, or are likely to, impact share prices and earnings. Climate change presents unique risks across the spectrum of business activities.
For the household sector and real property, climate risks are reflected in increased insurance costs. Heat, fires, storms and floods present increasing risks to homes, buildings and real property. They also present increasing construction costs for maintenance and repairs.
For governments and utilities, climate change accounts for major cost increases as infrastructure is damaged or destroyed by climate influenced events. Additionally, operation costs, risk management, liability and legal costs also increase. Climate change increases costs to replace or maintain transportation, energy and water infrastructure. These are reflected in tax and rate increases.
ESG is designed to account for these external cost impacts, and the sustainability strategies to reduce them. However, like so much in our divided political environment, ESG has become part of the battlefield in the culture wars. Extremists in the Republican Party, as well as social media bots and trolls, characterize ESG as part of a liberal “woke” agenda. It is a common practice in extreme thinking to define reality as an activity of the imagination and climate change as a belief system. They are neither.
As for the rest of the world, the science of climate change, and more importantly the deadly impacts associated with it, are very real. They have real costs and consequences. ESG provides a framework to account for economic impacts and value sustainability. It is central to building a zero emissions economy and winning the war on climate change; World War Zero!
As the saying goes: “You can’t fool Mother Nature.” Based on the impacts of extreme weather — heat, fires, floods, hurricanes, storms — there is another saying that applies: “If Mama ain’t happy, ain’t nobody happy.” ESG is a vital tool to value sustainability and build a zero-emission economy.
Paul Roberts is retired and lives in Everett. His career spans over five decades in infrastructure, economics and environmental policy including advising Washington cities on climate change and past Chair of the Puget Sound Clean Air Agency Board of Directors.
Eco-nomics
“Eco-nomics” is a series of articles exploring issues at the intersection of climate change and economics. Climate change (global warming) is caused by greenhouse gas emissions — carbon dioxide and methane chiefly — generated by human activities, primarily burning fossil fuels and agricultural practices. Global warming poses an existential threat to the planet. Successfully responding to this threat requires urgent actions — clear plans and actionable strategies — to rapidly reduce GHG emissions and adapt to climate-influenced events.
The Eco-nomics series, to be published every other week in The Herald, is focusing on mitigation and adaptation strategies viewed through the twin perspectives of science and economics. Find links to the series thus far at tinyurl.com/HeraldEco-nomics.
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