Climate change and how we respond to it will fundamentally transform our economies. This, in turn, means that it could become one of the main drivers of risk in business valuation. As such, how should investors, company executives, and external stakeholders view a company’s resilience in the face of increasing climate change risk?
In this paper we discuss a way of thinking that builds on environmental, social and goverance (ESG) metrics by estimating what portion of a company’s value is at risk from climate change through scenario analysis. We also discuss the importance of including ESG metrics in baseline planning processes to make informed decisions about the macro environment in which the business operates today and in the future.
Additionally, we examine some of the key drivers behind the emergence of a growing number of ESG frameworks, ratings agencies, and reporting ecosystems – and a few of the resulting consequences of this booming landscape which include valuable benefits for investors and market participants as well as some challenges to be overcome by the industry.