Climate change is an immediate threat to more than 10 percent of S&P 500 businesses, according to a new report released by CDP.

Since 2011, the number of companies doubled that reported a business risk associated with climate change.

Changes in precipitation, droughts and hurricanes are among the main climate-related risk drivers that are currently affecting businesses’ bottom lines.

Major financial implications of the risks businesses face because of climate change include:

Breakdown of Supply Chains from Extreme Weather

  • $1 billion loss to Hewlett Packard: In 2011, severe flooding in Thailand caused extensive damage to the local manufacturing industry. HP obtains disk drive components for the personal computers it manufacturers from Thailand, and the supply of hard disk drives dipped 30 percent below expected demand. HP estimated a $1 billion loss from this shortage.
  • Track Damage at Union Pacific: Flooding throughout the Midwest in 2012 required Union Pacific to raise 75 miles of track to keep key lines operating. In the same year, record heat in Texas caused damages to railroad track.
  • Track Damage at CSX Corporation: Hurricane Katrina required CSX to repair nearly 100 mies of track in Louisian, Mississippi, and Alabma. In all, CSX spent $440 million on the recovery from Katrina. Hurricane Isaac required nearly $30 million in repair and engineering costs.

Increased Cooling Costs 

  • Cooling Costs at Starwood Hotels & Resorts Worldwide: Starwood anticipates an average 7 percent annual increase in cooling demand until 2035, which could mean a $10-20 million increase in cooling costs each year for the company.
  • Cooling Costs at Google and Adobe Systems: Rising average temperatures would force tech companies like Google and Adobe to use more energy to cool data centers. Adobe estimates utility costs would increase well above the $4.4 million they spend on utilities each year.

Disruptions of Operations from Extreme Weather

  • Closed Wal-Mart Stores: Hurricane Katrina forced the closure of roughly 200 stores for some period of time, and six stores remained closed for more than three months. Those six stores alone cost Wal-Mart $500 million in lost sales.
  • $1.4 Billion Loss at Chevron: Hurricanes Katrina and Rita reduced the production of crude oil and natural gas in the Gulf Coast. Decreased production, along with repairs to facilities, had a negative impact of roughly $1.4 billion.

Insurance Premiums Rising to Incorporate Climate Risk

The CDP is not alone in describing the effects of climate change on businesses. A report from Business Forward member company Standard and Poor’s finds that more frequent extreme weather will require the insurance industry to raise premiums or change their risk allocation.

 

S&P found that many reinsurers have adequate risk diversification. However, increases in extreme weather have the potential to trigger negative ratings changes. Reinsurers anticipate seeing the real financial effects of climate change in at least 10 years.

 

Photo Credit: Pamela Andrade via Flickr