Climate risk is tied directly to financial risk.
That’s the overwhelming verdict from a new executive survey, pointing to increasing recognition about the growing risks brought on by warming temperatures. The study, conducted by KPMG and Eversheds Sutherland surveyed 500 C-level executives from global companies and found that 78% viewed climate change as a key threat to job security in the next five years.
“The climate agenda has really accelerated at the corporate level,” said Mike Hayes, global head of renewables at KPMG. “It’s gone from the sustainability part of the organization to the CEO and now the boards are taking it incredibly seriously.”
The heightened recognition to address climate risks comes as corporations face increasing pressure from shareholders and regulators to disclose the financial impact of extreme weather and more stringent regulations. A recent report by nonprofit CDP estimated total financial costs will exceed $1 trillion in the next five years, stemming in part from impact to supply chains, rising insurance costs, and increasing regulation.
The joint survey from KPMG and Sutherland found that concerns around climate change are also starting to affect job retention and recruitment for major companies, with 40% indicating that employees are leaving roles because of dissatisfaction over the firm’s climate impact. Fourteen percent of respondents said it is more difficult to recruit younger employees because of their views on climate policy.
“It's a people issue. Employees are really starting to demand that their own companies take action on climate,” Hayes said. “New talent is using climate as an arbitrage to decide which vertical to work for in the future, and increasingly, we're seeing remuneration packages linked to climate performance.”
The dramatic shift in the C-suite comes as extreme climate reaches new milestones, in what is already one of the warmest years on record. Earlier this week, Tropical Storm Iota became the 30th storm to be named this Atlantic hurricane season, surpassing a record set in 2005. Out West, the worst wildfire season in California history has charred more than 4 million acres across the state this year, while Oregon set new records for wildfire destruction.
On Monday, for the first time the Federal Reserve added climate risk to its list of risks to the financial system. Calling for financial firms to increase transparency on how they price climate risks, the updated Financial Stability Report said rising global temperatures could have serious ripple effects on the economy.
“Climate change adds a layer of economic uncertainty and risk that we have only begun to incorporate into our analysis of financial stability,” the report said.
Globally, U.S. firms have led the way in disclosing the financial risks brought on by climate change, according to KPMG’s survey. While 59% of American companies publicly reported climate-related risks, 44% did the same in the UK, while the number was just 34% for Asian firms.
That action has largely come in the face of sweeping changes of climate policies under the Trump administration. Last week, the U.S. formally withdrew from the Paris Agreement, becoming the first member nation to do so. The administration has also slashed regulations on emissions for oil and gas drilling, power plants, and the auto industry.
President-elect Joe Biden is expected to reverse those actions and rejoin the Paris global climate accord. Hayes said the new administration’s actions are likely to increase pressure on firms to act more urgently on global warming.
“The large companies are saying it is no longer good enough for us to decarbonize, we now want our supply chains to decarbonize as well. So they are starting to apply pressure right across their upstream supply chains to take action,” Hayes said. “That actually is really profound, and it's gonna have a domino effect.”
Akiko Fujita is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AkikoFujita