Abstract
Concerns about water security often inform climate risk-related
decisions made by environmentally focused investors (Porritt, 2001;
Stern, 2006). Yet, potential liabilities for damage caused by extreme
flood and drought events linked to global warming present risks that are
not always reflected in share prices (Krosinsky et al., 2012).
Considering the highly destructive nature of such events, we query
whether companies, or specific sectors, could and should be held at
least partially liable for their emission-releasing business activities.
Recent articles (Rayer & Millar, 2018; Rayer et al., 2020) estimate
that under a hypothetical climate liability regime, North Atlantic
hurricane seasons might increasingly generate 1-2% losses on market
capitalizations (or share prices) for the top seven carbon-emitting,
publicly listed companies. In this paper, we extend the concept of the
climate liability regime to estimate the impact of global flood- and
drought-related damages on the share prices of nine fossil-fuel firms
(including the seven mentioned by Rayer et al. (2020)). Following Rayer
et al. (2020), we use incremental climate impacts and historical
corporate emissions to estimate that climate change-related global flood
and drought damages for the period of 2012 to 2016 amount to
approximately 2-3% of the top nine carbon-emitting companies’ market
capitalizations. We also include a discussion of moral responsibility
and the proportion of obligations between producers and users.
Quantifying impacts from extreme weather events increases salience and
serves as an example of how science can identify and address the
important business questions, pertinent to both investors and companies,
that arise from a changing climate. References Krosinsky, C., Robins,
N., & Viederman, S. (2012). Evolutions in sustainable investing. John
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Citywire Wealth Manager®, (429) 36. Rayer, Q., Pfleiderer, P., &
Haustein, K. (2020). Global Warming and Extreme Weather Investment
Risks. Palgrave Macmillan. https://doi.org/10.1007/978-3-030-38858-4_3
Stern, N. (2006). Stern Review executive summary. London.