Abstract
Environmentally focused investors often consider climate risks (Porritt, The world in context: Beyond the business case for sustainable development. Cambridge: HRH The Prince of Wales’ Business and the Environment Programme, Cambridge Programme for Industry, 2001, Stern, Stern review executive summary. London: New Economics Foundation, 2006); however, potential liabilities for damages from extreme weather events due to emissions from carbon-intensive sectors present risks that may not be reflected in current share prices (Krosinsky, Robins, & Viederman, Evolutions in sustainable investing: Strategies, funds and thought leadership. Hoboken, NJ: John Wiley & Sons, 2012). Given the devastation of the 2017 Atlantic hurricane season, it is worth asking: how close are we to some companies or sectors being held liable, at least partially, for their activities around emissions? The answer may be that this is closer than many expect. The evolving field of extreme weather event attribution serves as a good example of how new science can raise important thought-provoking questions regarding the appropriate actions of both investors and companies under a changing climate and answer them with increasing confidence.
In recent articles, Rayer and Millar (Investing in extreme weather conditions. Citywire Wealth Manager (429), 36, 2018a; Hurricanes hit company share prices. Citywire New Model Adviser (596), 18, 2018b; Physics World, 31(8), 17, 2018c) estimated that the top seven carbon-emitting publicly listed companies, under a hypothetical climate liability regime, might increasingly see around 1–2% losses on their market capitalisations (or share prices) from North Atlantic hurricane seasons. This chapter gives a comprehensive exposition of how that estimate was arrived at, as well as clarifying how it was quantified. Related aspects from a physical point of view are provided, with an associated general overview of the current state of the related science of climate change, alongside a focus on extreme weather events.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
Scope 1 emissions are direct emissions that originate from sources that are owned and controlled by a company, for example, fuel used in company vehicles. Scope 2 emissions are indirect, resulting from energy used by a company, including electricity, steam, heating and cooling. This could include, for example, electricity purchased by a company from an external supplier. Scope 3 emissions cover all indirect emissions arising due to company activities. Scope 3 emissions include upstream and downstream value chain emissions. Scope 3 emissions include those of suppliers and customers using companies’ products.
- 2.
This assumes that the 9.5% contribution for the period 1988–2015 remains representative for the slightly longer 1988–2017 period.
- 3.
If we denote the fossil fuel industry as emitting F tonnes of greenhouse gases in 2015, then F = 0.91G, where G was global industrial emissions. Further, F = 0.7A, where A was all anthropogenic emissions. Equating 0.91G = 0.7A, thus G = (0.7/0.91)A = 0.77A. So around 77% of anthropogenic emissions were industrial, meaning that 23% were non-industrial.
- 4.
Pyrrhus of Epirus defeated the Romans in the battle of Asculum in 280 BC, but suffered such heavy losses that ultimately his campaign failed. Thus, he “won the battle, but lost the war”.
References
Adams, P., Aquilina, M., Baker, R., Brambley, W., Nava, A., Pathak, S., et al. (2016). Full disclosure: A round-up of FCA experimental research into giving information. Financial Conduct Authority. Retrieved from https://www.fca.org.uk, Occasional Paper 23.
Allen, M. R. (2016). Drivers of peak warming in a consumption-maximizing world. Nature Climate Change, 4. https://doi.org/10.1038/NCLIMATE2977.
Ballinger, A. P., Merlis, T. M., Held, I. M., & Zhao, M. (2015). The sensitivity of tropical cyclone activity to off-equatorial thermal forcing in aquaplanet simulations. Journal of the Atmospheric Sciences, 72, 2286–2302. https://doi.org/10.1175/JAS-D-14-0284.1.
BBC. (2017a, October 25). BBC wrong to not challenge climate sceptic Lord Lawson. Retrieved November 13, 2017, from http://www.bbc.co.uk/news/uk-41744344.
BBC. (2017b, December 18). Ofcom to investigate BBC climate change interview. Retrieved December 21, 2017, from http://www.bbc.co.uk/news/entertainment-arts-42400653.
Bhatia, K., Vecchi, G., Murakami, H., Underwood, S., & Kossin, J. (2018). Projected response of tropical cyclone intensity and intensification in a global climate model. Journal of Climate. https://doi.org/10.1175/JCLI-D-17-0898.1.
Blake, E. S., & Gibney, E. J. (2011). The deadliest, costliest, and most intense United States tropical cyclones from 1851 to 2010 (and other frequently requested hurricane facts). Miami: NOAA Technical Memorandum NWS NHC-6, National Weather Service, National Hurricane Center.
Boykoff, M. T., & Boykoff, J. M. (2004). Balance as bias: Global warming and the US prestige press. Global Environmental Change, 14, 125–136.
Carrington, D. (2019, May 17). Why the Guardian is changing the language it uses about the environment. The Guardian. Retrieved August 14, 2019, from https://www.theguardian.com/environment/2019/may/17/why-the-guardian-is-changing-the-language-it-uses-about-the-environment.
Christensen, J. H., Kanikicharla, K. K., Aldrian, E., An, S., Cavalcanti, I. F., de Castro, M., et al. (2013). Climate phenomena and their relevance for future regional climate change. In T. F. Stocker, D. Qin, G. K. Plattner, M. Tignor, S. K. Allen, J. Boschung, … P. M. Midgley (Eds.), Climate Change 2013: The physical science basis. Contribution of Working Group I to the fifth assessment report of the intergovernmental panel on climate change (pp. 1217–1308). Cambridge, UK and New York, NY: Cambridge University Press. https://doi.org/10.1017/CBO9781107415324.028.
Cohen, J., Pfeiffer, K., & Francis, J. A. (2018). Warm Arctic episodes linked with increased frequency of extreme winter weather in the United States. Nature Communications, 9, 869. https://doi.org/10.1038/s41467-018-02992-9.
Cook, J., Nuccitelli, D., Green, S. A., Richardson, M., Winkler, B., Painting, R., Way, R., Jacobs, P., & Skuce, A. (2013). Quantifying the consensus on anthropogenic global warming in the scientific literature. Environmental Research Letters, 8(024024), 7.
Cook, J., Oreskes, N., Doran, P. T., Anderegg, R. L., Verheggen, B., Maibach, E. W., Carlton, J. S., Lewandowsky, S., Skuce, A. G., Green, S. A., Nuccitelli, D., Jacobs, P., Richardson, M., Winkler, B., Painting, R., & Rice, K. (2016). Consensus on consensus: A synthesis of consensus estimates on human-caused global warming. Environmental Research Letters, 11(048002), 7.
Dietz, S., Bowen, A., Dixon, C., & Gradwell, P. (2016). Climate value at risk of global financial assets. Nature Climate Change, 6, 676–679. ISSN: 1758-678X, https://doi.org/10.1038/nclimate2972.
Durack, P. J., Wijffels, S. E., & Matear, R. J. (2012). Ocean salinities reveal strong global water cycle intensification during 1950 to 2000. Science, 336(6080), 455–458. https://doi.org/10.1126/science.1212222.
Ekwurzel, B., Boneham, J., Dalton, M. W., Heede, R., Mera, R. J., Allen, M. R., & Frumhoff, P. C. (2017). The rise in global atmospheric CO2, surface temperature, and sea level from emissions traced to major carbon producers. Climatic Change, 144, 579–590.
Emanuel, K. (2013). Downscaling CMIP5 climate models shows increased tropical cyclone activity over the 21st century. Proceedings of the National Academy of Sciences, 110(30), 12219–12224.
Emanuel, K. (2017a). A fast intensity simulator for tropical cyclone risk analysis. Natural Hazards, 88(2), 779–796. https://doi.org/10.1007/s11069-017-2890-7.
Emanuel, K. (2017b). Assessing the present and future probability of Hurricane Harvey’s rainfall. Proceedings of the National Academy of Sciences of the USA. https://doi.org/10.1073/pnas.1716222114.
Emanuel, K., & Sobel, A. (2013). Response of tropical sea surface temperature, precipitation, and tropical cyclone-related variables to changes in global and local forcing. Journal of Advances in Modeling Earth Systems, 5, 447–458. https://doi.org/10.1002/jame.20032.
Erta, K., Hunt, S., Iscenko, Z., & Brambley, W. (2013). Applying behavioural economics at the Financial Conduct Authority. Financial Conduct Authority. Retrieved from https://www.fca.org.uk, Occasional Paper 1.
Francis, J. A., Vavrus, S. J., & Cohen, J. (2017). Amplified Arctic warming and mid-latitude weather: Emerging connections. WIREs Clim Change, 8, e474. https://doi.org/10.1002/wcc.474).
Google. (2018). Google finance. Retrieved August 6, 2018, from https://www.google.com/.
Griffin, P. (2017). The Carbon Majors Database, CDP Carbon Majors Report 2017. London: CDP (Carbon Disclosure Project).
Hartmann, D. L., Tank, A. M., Rusticucci, M., Alexander, L. V., Brönnimann, S., Charabi, Y. A., Dentener, F. J., Dlugokencky, E. J., Easterling, D. R., Kaplan, A., Soden, B. J., Thorne, P. W., Wild, M., & Zhai, P. (2013). Observations: Atmosphere and surface. In T. F. Stocker, D. Qin, G. K. Plattner, M. Tignor, S. K. Allen, J. Boschung, et al. (Eds.), Climate change 2013: The physical science basis. Contribution of Working Group I to the fifth assessment report of the intergovernmental panel on climate change (pp. 159–254). Cambridge, UK and New York, NY: Cambridge University Press.
Haustein, K., Allen, M. R., Forster, P. M., Otto, F. E., Mitchell, D. M., Matthews, H. D., & Frame, D. J. (2017). A real-time Global Warming Index. Scientific Reports, 7, 15417. https://doi.org/10.1038/s41598-017-14828-5.
HRH The Prince of Wales, Juniper, T., & Shuckburgh, E. (2017). Climate change. London: Ladybird Books, Random House.
IPCC. (2013). Climate change 2013: The physical science basis. Contribution of Working Group I to the fifth assessment report of the intergovernmental panel on climate change 2013. Cambridge, UK, and New York, NY: Cambridge University Press. Retrieved from www.ipcc.ch.
Iscenko, Z., Duke, C., Huck, S., & Wallace, B. (2014). How does selling insurance as an add-on affect consumer decisions? Financial Conduct Authority. Retrieved from https://www.fca.org.uk, Occasional Paper 3.
Johnson, D. (2017, September 24). Is this the worst hurricane season ever? Here’s how it compares. (TIME). Retrieved November 13, 2017, from http://time.com/4952628/hurricane-season-harvey-irma-jose-maria/.
Keeling, C. D., Piper, S. C., Bacastow, R. B., Wahlen, M., Whorf, T. P., Heimann, M., et al. (2001). Exchanges of atmospheric CO2and13CO2with the terrestrial biosphere and oceans from 1978 to 2000. I. Global aspects, SIO Reference Series, No. 01-06, Scripps Institution of Oceanography, San Diego, 88 pages.
Khouakhi, A., & Villarini, G. (2017). Attribution of annual maximum sea levels to tropical cyclones at the global scale. International Journal of Climatology, 37(1), 540–547.
Knutson, T. R., McBride, J. L., Chan, J., Emanuel, K., Holland, G., Landsea, C., Held, I., Kossin, J. P., Srivastava, A. K., & Sugi, M. (2010). Tropical cyclones and climate change. Nature Geoscience, 3, 157–163.
Knutson, T. R., Sirutis, J. J., Zhao, M., Tuleya, R. E., Bender, M., Vecchi, G. A., Villarini, G., & Chavas, D. (2015). Global projections of intense tropical cyclone activity for the late twenty-first century from dynamical downscaling of CMIP5/RCP4.5 scenarios. Journal Climate, 28(18), 7203–7224.
Krosinsky, C., Robins, N., & Viederman, S. (2012). Evolutions in sustainable investing: Strategies, funds and thought leadership. Hoboken, NJ: John Wiley & Sons.
Lakoff, G. (2010). Why it matters how we frame the environment. Environmental Communication, 4(1), 70–81. https://doi.org/10.1080/17524030903529749.
Laliberté, F., Zika, J., Mudryk, L., Kushner, P. J., Kjellsson, J., & Döös, K. (2015). Constrained work output of the moist atmospheric heat engine in a warming climate. Science, 347(6221), 540–543.
Leach, N. J., Millar, R. J., Haustein, K., Jenkins, S., Graham, E., & Allen, M. R. (2018). Current level and rate of warming determine emissions budgets under ambitious mitigation. Nature Geoscience, 11, 574–579.
Lehmann, J., Mempel, F., & Coumou, D. (2018). Increased occurrence of record-wet and record-dry months reflect changes in mean rainfall. Geophysical Research Letters. https://doi.org/10.1029/2018GL079439.
Levin, S. (2018, March 21). Climate science on trial as high-profile US case takes on fossil fuel industry. The Guardian. Retrieved March 22, 2018, from https://www.theguardian.com/environment/2018/mar/21/climate-science-lawsuit-san-francisco-sues-chevron.
Lewandowsky, S., Oreskes, N., Risbey, J. S., Newell, B. R., & Smithson, M. (2015). Seepage: Climate change denial and its effect on the scientific community. Global Environmental Change, 33, 1–13.
Lin, N., Kopp, R. E., Horton, B. P., & Donnelly, J. P. (2016). Hurricane Sandy’s flood frequency increasing from year 1800 to 2100. Proceedings of the National Academy of Sciences, 113(43), 12071–12075.
Lukacs, P., Neubecker, L., & Rowan, P. (2016). Price discrimination and cross-subsidy in financial services. Financial Conduct Authority. Retrieved from https://www.fca.org.uk, Occasional Paper 22.
Medhaug, I., Stolpe, M. B., Fischer, E. M., & Knutti, R. (2017). Reconciling controversies about the ‘global warming hiatus’. Nature, 545, 41–56. https://doi.org/10.1038/nature22315.
Mooney, A., & Crookes, E. (2018, January 10). New York sues big oil companies over climate change. Financial Times. Retrieved August 1, 2018, from https://www.ft.com/content/4de8e4fc-f62b-11e7-88f7-5465a6ce1a00.
National Academies of Sciences, Engineering, and Medicine. (2016). Attribution of extreme weather events in the context of climate change. Washington, DC: The National Academies Press.
National Hurricane Center. (2018). Costliest U.S. tropical cyclones tables updated. Miami: National Oceanic and Atmospheric Administration.
Oreskes, N. (2004). The scientific consensus on climate change. Science, 306, 1686.
Oreskes, N. (2007). The scientific consensus on climate change: How do we know we’re not wrong? In Climate change, what it means for us, our children, and our grandchildren (pp. 65–99). Cambridge, MA: MIT Press.
Oreskes, N., & Conway, E. M. (2010). Merchants of doubt. New York: Bloomsbury Press.
Otto, F. E., Skele, R. B., Fuglestvedt, J. S., Berntsen, T., & Allen, M. R. (2017). Assigning historic responsibility for extreme weather events. Nature Climate Change, 7, 757–759.
Peixoto, J. P., & Oort, A. H. (1992). Physics of Climate. New York: American Institute of Physics. ISBN-10: 0883187124.
Pew. (2012). More say there is solid evidence of global warming. Washington, DC: Pew Research Center for the People & the Press.
Pierson, B. (2018, July 19). Oil majors win dismissal of New York City climate lawsuit. Reuters. Retrieved August 1, 2018, from https://www.reuters.com/article/us-new-york-climatechange-lawsuit/oil-majors-win-dismissal-of-new-york-city-climate-lawsuit-idUSKBN1K931T.
Porritt, J. (2001). The world in context: Beyond the business case for sustainable development. Cambridge: HRH The Prince of Wales’ Business and the Environment Programme, Cambridge Programme for Industry.
Rahmstorf, S., Box, J. E., Feulner, G., Mann, M. E., Robinson, A., Rutherford, S., & Schaffernicht, E. J. (2015). Exceptional twentieth-century slowdown in Atlantic Ocean overturning circulation. Nature Climate Change, 5, 475–480. https://doi.org/10.1038/NCLIMATE2554.
Rayer, Q. G. (2018). Market crises: Should we discuss them more – including with our clients? Review of Financial Markets, Q1, 66–69.
Rayer, Q. G., & Millar, R. J. (2018a, February 8). Investing in extreme weather conditions. Citywire Wealth Manager (429), 36.
Rayer, Q. G., & Millar, R. J. (2018b, June 11). Hurricanes hit company share prices. Citywire New Model Adviser (596), 18.
Rayer, Q. G., & Millar, R. J. (2018c). Investing in the climate. Physics World, 31(8), 17.
Risbey, J. S., Lewandowsky, S., Cowtan, K., Oreskes, N., Rahmstorf, S., Jokimäki, A., et al. (2018). A fluctuation in surface temperature in historical context: Reassessment and retrospective on the evidence. Environmental Research Letters, 13(123008., doi.org/10.1088/1748-9326/aaf342).
Scripps Institution of Oceanography. (2019). The keeling curve. Retrieved February 4, 2019, from https://scripps.ucsd.edu/programs/keelingcurve/.
Simpson, R. H. (1974). The hurricane disaster potential scale. Weatherwise, 27(169), 186.
Skeie, R. B., Fuglestvedt, J., Berntsen, T., Peters, G. P., Andrew, R., Allen, M., & Kallbekken, S. (2017). Perspective has a strong effect on the calculation of historical contributions to global warming. IOP, Environmental Research Letters, 12(2), 024022.
Slav, I. (2018, July 3). Rhode Island launches anti-oil lawsuit. (oilprice.com). Retrieved July 4, 2018, from https://oilprice.com/Latest-Energy-News/World-News/Rhode-Island-Launches-Anti-Oil-Lawsuite.html.
Steffen, W., Rockström, J., Richardson, K., Lenton, T. M., Folke, C., Liverman, D., Summerhayes, C. P., Barnosky, A. D., Cornell, S. E., Crucifix, M., Donges, J. F., Fetzer, I., Lade, S. J., Scheffer, M., Winkelmann, R., & Schellnhuber, H. J. (2018). Trajectories of the earth system in the anthropocene. PNAS, 115(33), 8252–8259. https://doi.org/10.1073/pnas.1810141115.
Stern, N. (2006). Stern review executive summary. London: New Economics Foundation.
Supran, G., & Oreskes, N. (2017). Assessing ExxonMobil’s climate change communications (1977–2014). Environmental Research Letters, 12(8), 084019.
Taylor, K. E., Stouffer, R. J., & Meehl, G. A. (2012). An overview of CMIP5 and the experiment design. Bulletin of the American Meteorological Society, 93, 485–498. https://doi.org/10.1175/BAMS-D-11-00094.1.
Thornton, J., & Covington, H. (2016). Climate change before the court. Nature Geoscience, 9, 3–5.
UN FCCC. (2015). Adoption of the Paris agreement. United Nations Framework Convention on Climate Change.
United States Search and Rescue Task Force. (2018). Hurricanes. Retrieved October 2, 2018, from http://www.ussartf.org/hurricanes.htm.
van Oldenborgh, G. J., van der Wiel, K., Sebastian, A., Singh, R., Arrighi, J., Otto, F., et al. (2017). Attribution of extreme rainfall from Hurricane Harvey, August 2017. IOP Environmental Research Letters, 12, 124009. Retrieved from http://iopscience.iop.org/article/10.1088/1748-9326/aa9ef2.
van Voris, B. (2018, June 13). Oil companies ask to throw out New York’s climate change Lawsuit. Bloomberg. Retrieved August 1, 2018, from https://www.bloomberg.com/news/articles/2018-06-13/oil-companies-ask-to-throw-out-new-york-s-climate-change-lawsuit.
Vecchi, G. A., & Villarini, G. (2014). Next season’s hurricanes. Science, 343(6171), 618–619. https://doi.org/10.1126/science.1247759.
Walsh, K. J., McBride, J. L., Klotzbach, P. J., Balachandran, S., Camargo, S., Holland, G., Knutson, T., Kossin, J., Lee, T., Sobel, A., & Sugi, M. (2016). Tropical cyclones and climate change. Wiley Interdisciplinary Reviews: Climate Change, 7(1), 65–89.
Woodruff, J. D., Irish, J. L., & Camargo, S. J. (2013). Coastal flooding by tropical cyclones and sea-level rise. Nature, 504(7478), 44–52.
Zielinski, S. (2015, January 29). Climate change is altering the global heat engine. Retrieved from https://www.smithsonianmag.com/science-nature/climate-change-altering-global-heat-engine-180954079/.
Acknowledgements
The authors would like to thank Dr Richard Millar of the University of Oxford for his involvement in the development of early versions of the material presented in the chapter as well as Dr Pete Walton of the University of Oxford for helping develop the contacts for this cross-disciplinary collaboration. They would also like to thank the anonymous reviewers for their helpful feedback.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2020 The Author(s)
About this chapter
Cite this chapter
Rayer, Q., Pfleiderer, P., Haustein, K. (2020). Global Warming and Extreme Weather Investment Risks. In: Walker, T., Gramlich, D., Bitar, M., Fardnia, P. (eds) Ecological, Societal, and Technological Risks and the Financial Sector. Palgrave Studies in Sustainable Business In Association with Future Earth. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-38858-4_3
Download citation
DOI: https://doi.org/10.1007/978-3-030-38858-4_3
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-030-38857-7
Online ISBN: 978-3-030-38858-4
eBook Packages: Business and ManagementBusiness and Management (R0)