Global warming, to which many companies contribute with polluting policies, is beginning to take a heavy toll on corporate results. Many companies are choosing to mutate and adapt
We live in times when it is easier to imagine the end of the world than the end of capitalism. A famous cartoon in The New Yorker magazine cleverly recounts this dark alley. Sitting in front of a campfire, in a sort of midnight chorus, and behind an apocalyptic landscape, a man in a suit tells three boys, “Yes, the planet was destroyed. But for a beautiful moment in time we created a lot of value for shareholders.”.
This is the capitalism of the 21st century. An economic ideology that mixes optimism and irresponsibility. But where money always finds a loophole for its particular hope. When climate change has become the greatest threat to existence and society promotes a green insurgency, companies reveal their position. They perceive enormous risks but also huge opportunities. The 2015 Paris Agreement is accurate. The average temperature increase cannot exceed two degrees and if possible should be slowed to 1.5°C above pre-industrial levels. The price turns out to be high. “The European Union believes it will take at least 180 billion euros a year until 2030 to decarbonize energy and keep the temperature within these margins. More than one must be rubbing their hands together,” says Emilio Ontiveros, president of Analistas Financieros Internacionales (AFI). Capitalism and its companies want to monetize extreme weather and profit from our dystopian future. Even if they agitate fragility. “Global warming will inevitably test the resilience of our political and economic systems,” ventures Nicholas Stern, president of the Centre for Climate Change, Economics and Policy at the London School of Economics (LSE).
This journey of man and his companies into the unknown was mapped by the CDP (formerly the Carbon Disclosure Project). The environmental analysis firm asked 7,000 large companies around the world what the “risks and opportunities” of global warming are. The Bloomberg agency previewed some of those answers in January. A guided tour of the business and human condition. Pharmaceuticals, for example, have their own unique prescription. Eli Lilly associates the climate disaster with an increased risk of diabetes due to “reduced physical activity, a disruption in traditional food supplies and increased food insecurity.” A drama with payoff. It could increase demand for its products that treat the disease. Another industry giant, Germany's Merck, imagines an “expansion of the market for items related to tropical diseases, including those that are waterborne.” And Apple reveals the eccentric way tech companies think. The Cupertino company believes that “as people begin to experience more frequent severe weather events” they will be more attached to their mobiles. Because they help to keep in touch with their loved ones and also the iPhone can be “used as a flashlight”. There is something unrealistic about all these answers, but it reflects the unreadable planet that could await us.
Climate change: the planet settles accounts with companies
On the other side, Spanish companies propose a more orthodox interpretation of the world. “The 94% [49 firms submitted information] believe that there are opportunities by changing the business model,” says a CDP spokesperson. Most notably (85%) from new low-carbon services and products. Inditex understands the benefits of using fibers that consume little water, NH talks about the growth of green buildings, BBVA about the options offered by the $700 billion a year needed until 2030 to create sustainable infrastructure, and Iberdrola travels with the wind of renewable energies.
Yet the concern is just as intense as a flare-up. Trump's climate denialism is not convincing many of his big companies. Walt Disney fears that the parks will be too hot for its visitors, AT&T fears that forest fires and hurricanes will disable telephone antennas, and Coca Cola questions whether there will still be enough water to bottle its flagship soft drink. Doubts that take root in the ground. “The biggest challenges in adapting to extreme weather are agricultural production and access to clean water,” says Lucas White, manager of the GMO Climate Change Fund. We enter spaces of uncertainty. “Companies that bottle water using PET are quite concerned. Because of the use of plastic and the carbon footprint they generate. That is why they are working on lighter formats,” analyzes Javier Vello, partner in charge of retail at the consulting firm EY. Coca Cola and Heineken, for example, are pursuing this strategy.
But if there is one place where soil and water create a unique mud, it is in the vineyard. Mariano García, one of Spain's great winemakers, knows it well. He was born in Vega Sicilia. He was responsible for its myth for 30 years, and since the 1970s it sounds like Mauro, San Román, Terreus.
A warm May in Quintanilla de Onésimo (Valladolid). The rows of vines are arranged in martial order. Mariano passes his hand through one of them. He seems to be talking to it. He has known it for 27 years.
- Does it notice climate change," asks the journalist.
- We are planting on higher land," he reveals, "If before the normal was at 700 meters, now we are moving between 800 and 850.
The vines have found refuge at altitude. But other crops are more exposed. Ebro Foods admits the danger of “crop destruction” and Henk Hobbelink, coordinator of the NGO Grain, predicts that “there will be more and more problems in accessing irrigation water”. This will have staggering financial implications. Christopher J. Goolgasian, director of climate research at the asset manager Wellington, predicts that “mobile assets” will become more valuable than “fixed assets.” “For example, farm equipment over farms and cruise ships versus theme parks.” Back to that land, the basis of human food, the industry proposes solutions between disturbing and necessary. Some of them are brought by the work Winds of Change signed by Barclays. The bank proposes including additives in cow feed to reduce methane emissions, switching from bovine protein to chicken protein (which would reduce CO2 emissions by 88%), returning to grazing in forests and resorting to genetic engineering.
Climate change: the planet settles accounts with companies
However, it is impossible to guess the DNA of the world we are heading for. The United Nations has given us a 12-year deadline before disaster becomes unforeseeable. But finance does not have that much time. Markets live in the present and know - because they have money at stake - that the horizon could be a tragedy. “Achieving a mid-century reduction of between 70% and 90% in greenhouse gas emissions requires a complete transformation of the structure of the energy, automotive, agricultural, chemical and many other sectors,” says Simon Webber, manager of the Schroders ISF Global Climate Change fund. The cost will be immense. So will the opportunities. The fund manager estimates that two trillion dollars a year will be needed over the next decade to mitigate the impact and adapt the economic system. “It is the equivalent of the entire U.S. economy,” sums up Carla Bergareche, managing director of Schroders in Spain and Portugal.
The stakes are too high and finance is reacting to the threat to its assets. In 2100, the value at risk from climate change on the total assets under management in the world will be about 4.2 trillion dollars (3.7 trillion euros). “This is why investors are more aware of global warming than companies, public administrations or consumers,” confirms Ricardo Pedraz, an expert at AFI. Green bond issues now exceed $160 billion and the new mantra in the markets is investments under environmental, social and governance (ESG) criteria.
But if there is one territory where business looks into the dark shadows of night, it is insurance. Climate change could result in the middle classes being unable to pay their premiums. The California fires alone have cost the world's biggest reinsurers $24 billion (€21.4 billion). Ernst Rauch, Head of Climatology at Munich Re, predicts that prices will rise. This could be a threat to social order. Nicolas Jeanmart, head of personal insurance and macroeconomics at Insurance Europe, which represents 34 European insurance associations, acknowledged the threat in The Guardian. “I won't comment on the issue,” he told El PAÍS, “but the industry is concerned. The continued rise in global temperatures may make it increasingly difficult to provide the affordable financial protection that people deserve and that modern society needs to function properly.
Once again, losses have become the real temperature of the challenge. In the last three years, Morgan Stanley calculates, climate disasters associated with global warming have cost the world $650 billion (580 billion euros). And the future is fading to black. In 2040, the price could be 54 trillion (48.1 trillion euros). Defeats will have to be accepted. The atmosphere accumulates such a quantity of gases that some of their effects are already impossible to revert. However, there is still time to avoid the worst. “From an economic and technological point of view, it is still easy to stay below two degrees Celsius,” argues James Hansen, a world reference in climate science, in The New York Times. We just have to start eliminating carbon dioxide emissions. The tremendous problem is that we haven't started doing any of that. Quite the contrary. Last year - according to Bloomberg - $300 billion (€268 billion) was invested in clean energy. 8% less than in 2017. A third of the drop stems from China's decision to reduce solar subsidies since June.
Climate change: the planet settles accounts with companies
If the Sun fails, the Earth will go dark. Because the world keeps burning fossil fuels. Exxon Mobil, one of the largest oil companies, plans to pump no less than 25% more gas and oil in 2025 versus what it extracted in 2017. “If the rest of the industry pursues even more modest growth the consequences for the climate would be disastrous,” warns The Economist. It adds, “The market alone cannot solve extreme weather.” All this disaffection is reminiscent of the opening of John Fante's Ask the Dust. “It was a vital night for me to either pay up or leave: that's what the note the landlady had slipped under the door said. A relevant problem, deserving of enormous attention. I solved it by turning off the light and going to sleep”. Sleep counts more than tomorrow. The IPCC (Intergovernmental Panel on Climate Change) estimates that to prevent temperatures from rising more than 1.5°, oil and gas use must fall by 20% by 2030 and 55% by 2050. And they must be left buried in the ground where they belong. If we were to be true to our commitments, 35% of known crude oil reserves, 52% of gas reserves and 88% of coal reserves should be left unused. Will the markets consent? A clue. The degree of exposure of European financial institutions to companies that base their business model on fossil resources exceeds one trillion euros. An answer. “Since the Paris Agreement was adopted, the 33 largest banks in the world have allocated $1.9 trillion [€1.7 trillion] to fossil fuels,” denounces a spokesman for BankTrack, a network of NGOs that monitors financial behavior. The worst bank of the climate disaster - criticizes the organization - is the American JPMorgan Chase. Between 2016 and 2018 it contributed $196 billion (175 billion euros) to these energies. Meanwhile, HSBC, unperturbed, backs coal plants in Vietnam, Bangladesh and Indonesia. In April, The Guardian published an article with the editorial title: How to stop climate change? By nationalizing the oil companies. And turning them - albeit by force of the state - green.
Change could be afoot. No one, we have seen, takes better care of money than money itself. Climate Action 100+, an alliance of several of the planet's largest investors, managing $32 trillion in assets, has forced Shell, BP and Glencore (one of the world's leading coal miners) to make Paris-aligned environmental commitments and, in addition, requires the companies to disclose how global warming will affect their balance sheets. Something so far voluntary. “Companies should be legally obliged to publish their climate vulnerabilities,” acknowledges Antoni Ballabriga, director of responsible business at BBVA. “It is essential for investors and banks to be able to properly manage climate risks and their financial impact.”.
This collision course seems inevitable for the automotive industry. More than two million jobs are at stake in Spain. The future of many people and of the sector hurts like a double-edged knife. Either produce more gasoline vehicles, which is what the consumer demands, or accelerate electrification and endure a (temporary?) drop in profits. Spain seems to have to choose between zero and nothing. “Tomorrow is the electric vehicle. And the calculations for the national economy are negative,” predicts Roberto Ruiz-Scholtes, director of strategy at UBS in Spain. “Batteries come from Asia. The big producers, and those who have the lead in research, are Korean firms such as LG and Samsung, which send the car to Europe almost assembled. Spanish manufacturers will be chassis assemblers,” he warns. By 2025, the country could lose 1% of its GDP and more than 40,000 jobs.
Tourism will experience a different diaspora. “If the average temperature rises, visits will be deseasonalized, as in the Canary Islands, and destinations in higher latitudes will improve,” predicts Ricardo Pedraz of AFI. The world is watching China closely. “The giant is the future of world tourism,” argues Giles Alston, an expert at the Oxford Analytica consultancy. “Everything will depend on the relationship the country establishes between climate change and travel.”.
But no one knows the future. No one wears today the suit they will wear tomorrow. Mango knows that. Seasons no longer follow one another in sudden succession. “We are putting more and more effort and effort into transitional collections,” says a spokesperson for the textile company. Climate change modifies the refraction of light. Fall colors are adapted to light fabrics and summer colors are applied to heavier fabrics. “We use lighter weight fabrics in August and wrap the collection from October to February,” he says. All in an industry that consumes a lot of water and generates a lot of waste. That's why she is trying out the circular economy.
Electricity companies are facing a different movement: the lack of wind. And also lack of water. Iberdrola has resorted to its own tape measure of possible disaster. It has imagined that it rains less and that the rainfall of the seasons changes. A 5% drop in production would have a medium-term impact on the margin of some 20 million euros. Assumable numbers. “The physical risks [damage to installations] of climate change will not have a catastrophic impact on the Group's figures,” they point out. Neither will the airs on Siemens Gamaesa. Its wind turbines enable its customers to mitigate their carbon footprint by more than 233 million tons of CO2 per year. A spin that is expanding. “In the United States, wind energy is already the cheapest,” says Eric Borremans, sustainability expert at Pictet AM.
Despite the hope, this world that is sleepwalking towards a possible disaster will call to account. “The companies that have polluted, the companies that have financed denialism and also those that, aware of the damage they have caused, have ignored them,” warns Nicholas Stern. The same thing may happen to them as to the tobacco industry, they may be singled out and they may be put in the dock. At least eight U.S. cities, one state and five counties are suing some of the world's largest oil companies. That echo crosses seas. “We have not yet moved forward with such an intense recognition of damages in Spain to experience something similar to the United States. But I don't have a crystal ball, so I don't rule it out either,” says Juan Carlos Hernanz, partner at Cuatrecasas. We have to act. Otherwise, crops will fail, droughts and floods will come, extreme weather and heat waves will kill and millions of people will be forced to leave their homes. And man will be an absurd species that once told a nonsensical tale around a midnight chorus.
