Abstract
Businesses, investors, and insurers are requiring better quantitative assessments of their exposure to climate risks and their impact on climate change. They are incorporating these assessments in their day-to-day management and long-term investment decisions. Already, there are efforts to develop international guidelines, common policies and legal frameworks for such assessments, as well as the desire to foster climate financing. We examine recent progress in East Asia and the rest of the world in setting targets, pricing policies, and other mechanisms to reduce climate risks. We develop a model that demonstrates how reduced climate risk management may lower the total cost of capital of firms, thus making them more attractive to investors. We discuss the additional policies needed to support improved climate risk management in investment decisions, private investments in climate science, technology and innovation (STI) expansion, and more widespread adoption of climate financing and principles. Central banks, financial authorities, and governments can advance this objective by creating financial incentives to support investment decision-making. This would take into account factors such as improving climate performance, establishing better climate risk management and reporting requirements to foster green STI, and developing international guidelines and common policy and legal frameworks to support better climate risk management, assessments and reporting.
Highlights
The purpose of the following paper is to examine recent progress in corporate initiatives in East Asia and the rest of the world in setting targets, pricing policies and other mechanisms to reduce their exposure to climate risks and their impact on climate change
There is growing evidence that both firms and investors in East Asia and the rest of the world would benefit from considering better climate risk management in their investment and business decisions
Financial authorities, and governments can advance this objective by developing financial regulations that support investment decision-making that takes into account factors such as improving climate and environmental performance, establishing better climate risk management and reporting requirements to foster green STI, and developing international guidelines and common policy and legal frameworks to support better climate risk management, assessments and reporting
Summary
The purpose of the following paper is to examine recent progress in corporate initiatives in East Asia and the rest of the world in setting targets, pricing policies and other mechanisms to reduce their exposure to climate risks and their impact on climate change. As the main players in global markets, large businesses, investors, and insurers have the most important economic impact on the climate and face significant risks from climate change. The combined costs of pollution, ecosystem depletion and health impacts amount to over US$3 trillion annually for global companies. Around two-thirds of the world’s largest global corporations are exposed to water risk, especially in terms of water security and stress, with 405 companies reporting total losses of more than US$2.5 billion due to water scarcity [5]
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