Climate risk to businesses is a growing threat around the world, whether biodiversity loss, floods or fires – such as the ones currently affecting the United States.
At a Chamber webinar on 14 July, Peter Reynolds, Head of Greater China at Oliver Wyman, remarked that while physical risk, such as damage from extreme weather, was an obvious concern, businesses also need to start planning for a low-carbon future.
“The transition risk – meaning that firms understand their carbon footprint and what they have to do to comply with regulations – is actually the more substantial risk, as it affects all businesses.”
There is a sense that climate risk is a long way away. But the introduction of carbon taxes around the world is bringing that risk forward, meaning that businesses need to think now about how to reduce their environmental impact. Corporates need to ensure that climate consideration is part of the whole business and not treated as a niche area.
In real estate, for example, companies need to look at the carbon intensity of the whole supply chain and construction process. Investors should consider whether it is worth spending more today to make buildings more eco-friendly for the longer term.
“Some assets over time could be written off as they become unviable,” Reynolds said.
A similar conundrum can be seen in the shipping industry, he added, where an older fleet will likely become uneconomical sooner as carbon become more expensive.
Katie Butterworth, Chief Operating Officer and Regional Head of Risk Strategy, Asia Pacific Risk at HSBC, agreed that climate risk may not be directly affecting us yet, but businesses still need to start planning now for physical and transitional risk.
“For example, what happens if properties we hold as collateral are not energy efficient – will they lose their value as collateral in the future?”
Hong Kong is aiming for net zero carbon emissions by 2050, the Mainland by 2060. Sectors that are particularly affected by the shift include metals, mining and utilities, as well as transportation, real estate and construction.
Data will be crucial to help companies move towards carbon neutral, Butterworth said. Data also enables financial companies to understand where their clients are on the path to carbon reduction, so they can consider different scenarios and do stress testing. However, there are challenges in getting hold of the right data, she added, as well as considerations around data privacy and cross-border issues.
A complicating factor is that environmental standards vary across jurisdictions. There is also no standard qualification in climate risk for the financial services sector, which is a further challenge in the issue of talent.
“We need to invest in the people that we have. Climate risk needs to become part and parcel of our training, just like crime risk,” Butterworth said. “We need to think about how we train our people as well as how to attract new talent.”
In answer to a question on how well prepared Hong Kong companies are for the transition to zero carbon, both speakers agreed that the picture is not great, and that there is considerable work still to be done.
On a more positive note for the city, however, there is growing awareness among local consumers about climate issues, and the huge growth in green bonds in Asia shows there is also appetite among investors for a more sustainable future.