Abstract
Concerns about water security often inform climate risk-related decisions made by environmentally focused investors (Porritt, The world in context: Beyond the business case for sustainable development. HRH The Prince of Wales’ Business and the Environment Programme, Cambridge Programme for Industry, 2001; Stern, Stern Review executive summary. New Economics Foundation, 2006). Yet, potential liabilities for damage caused by extreme flood and drought events linked to global warming present risks that are not always reflected in share prices (Krosinsky et al., Evolutions in sustainable investing: Strategies, funds and thought leadership. John Wiley & Sons, 2012). Considering the highly destructive nature of such events, we query whether companies, or specific sectors, could and should be held at least partially liable for their emission-releasing business activities. Recent articles (Rayer & Millar, Citywire Wealth Manager®, (429), p. 36, 2018a; Rayer et al., Ecological, societal, and technological risks and the financial sector, Palgrave Macmillan, pp. 39–68, 2020) estimate that under a hypothetical climate liability regime, North Atlantic hurricane seasons might increasingly generate 1–2% losses on market capitalizations (or share prices) for the top seven carbon-emitting, publicly listed companies. In this chapter, we extend the concept of the climate liability regime to estimate the impact of global flood- and drought-related damages on the share prices of nine fossil-fuel firms (including the seven mentioned by Rayer et al. [Ecological, societal, and technological risks and the financial sector, Palgrave Macmillan, pp. 39–68, 2020]). Following Rayer et al. (Global warming and extreme weather investment risks (abstract) [Conference session], 2019; Ecological, societal, and technological risks and the financial sector, Palgrave Macmillan, pp. 39–68, 2020), we use incremental climate impacts and historical corporate emissions to estimate that climate change-related global flood and drought damages for the period of 2012 to 2016 amount to approximately 2–3% of the top nine carbon-emitting companies’ market capitalizations. Quantifying impacts from extreme weather events increase salience and serve as an example of how science can identify and address the important business questions, pertinent to both investors and companies that arise from a changing climate.
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Notes
- 1.
Positive responsibilities are duties to act in certain ways; negative responsibilities are those that ask us to not act in certain ways. A general responsibility may be owed to all human beings, or even all living beings. A special responsibility is only owed to some others, those with which one has a special relationship. Examples might include family, customers, stockholders, creditors, benefactors, or someone to whom a promise was made. A backward-looking responsibility is based on something that has already occurred (e.g., “clean up the mess you made”). By contrast, forward-looking responsibilities rest on opportunity, not blame. A forward-looking responsibility implies a responsibility to act, not because one has caused a problem, or there is a prior connection, but because one is able to improve the situation (Shue, 2017).
- 2.
In 1965, the US President said in a message to Congress: “this generation has altered the composition of the atmosphere on a global scale through radioactive materials and a steady increase in carbon dioxide from the burning of fossil fuels” (Jamieson, 2014). Later that year, the President’s Science Advisory Committee issued a report treating CO2 as a pollutant, with an appendix on “Atmospheric Carbon Dioxide” (US White House, 1965).
- 3.
According to one study in 2019, the average price of an electric car was 81% higher than conventional cars in the first half of 2019 (Braithwaite-Smith, 2019).
- 4.
The first small-scale electric cars appeared in Hungary, the Netherlands, and the US around 1828–1835, with the debut of the first electric vehicle in the US in 1889. They become popular around 1900, but were undercut by the Model T Ford, resulting in an almost total decline by 1935. A new generation of electric vehicles started to be developed around 1973, but limited performance and range led interest to fade by 1979. GM released the EV1 in 1996 which gained a cult following, with Toyota introducing the first mass-produced hybrid in 1997 (the Prius). In 2010, GM launched the plug-in hybrid Chevy Volt and Nissan launched the all-electric LEAF. As battery costs started to drop from 2013 gradually, the availability and choice of electric cars has increased (US Department of Energy, n.d.).
- 5.
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Rayer, Q., Haustein, K., Walton, P. (2021). Water Insecurity and Climate Risk: Investment Impact of Floods and Droughts. In: Walker, T., Gramlich, D., Vico, K., Dumont-Bergeron, A. (eds) Water Risk and Its Impact on the Financial Markets and Society. Palgrave Studies in Sustainable Business In Association with Future Earth. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-77650-3_6
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