In July, The New York Times reported:

The rating agency [Moody’s] bought a majority share in Four Twenty Seven, a California-based company that measures a range of hazards, including extreme rainfall, hurricanes, heat stress and sea level rise, and tracks their impact on 2,000 companies and 196 countries. In the United States, the data covers 761 cities and more than 3,000 counties.

Three weeks before that, the City of London and partners hosted a Green Finance Summit, where the UK government released its Green Finance Strategy. and launched a new Green Finance Institute, to work toward implementation of the strategy. This followed closely after the UK formally adopted a zero emissions goal for 2050. The Green Finance Strategy is intended to help London’s financial sector become the global center for clean finance innovation.

The Green Finance Institute is tasked with working in coalition to foster deep and far-reaching green finance innovation across London’s financial sector. Image credit: Green Finance Institute.

What is most significant about this move is that Green Finance is no longer considered a niche market within the wider landscape of financial services. The emerging vision is that the entire financial sector of the world must reliably generate investment value while fostering climate resilience, or costs will increasingly outweigh gains and undermine all value creation.

Through the Business Roundtable, 181 CEOs have signed onto a revised definition of the Purpose of a Corporation — building value for all stakeholders. Darren Walker, President of the Ford Foundation explained the importance of this new commitment, saying:

it is more critical than ever that businesses in the 21st century are focused on generating long-term value for all stakeholders and addressing the challenges we face, which will result in shared prosperity and sustainability for both business and society.

A core insight driving this redefinition of corporate purpose is the recognition that businesses whose share value is not based on social good value — the routine generation of enhanced value outside of their direct business relationships — are actually less valuable to the overall market than they appear. Such inefficiencies add up over time and pose real structural risks to investors, insurers, communities, and the public sector.

The Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD) is developing

voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders.

The 2019 TCFD report finds greater clarity is needed on how different climate resilience strategies affect different businesses, and that there is operational need for integration between different segments of the value chain. Image credit: TCFD.

These disclosure standards are vital, because without them, it is harder for markets to know whether a given entity or investment vehicle carries an unmanageable amount of climate-related risk. The TCFD is working to achieve greater transparency in terms of geophysical risk, market-transition risk, technology-commitment risk, and policy and reputational risk. Each of these can undermine the long-term value, or value-building potential, so understanding them is vital both for corporate leaders and outside investors.

There is mounting concern about the climate resilience of cities, and so of city budgets, infrastructure, and local and regional economies. City Lab is examining which cities are most resilient or most vulnerable to climate-related disruptions.

The IPCC report on Climate Change and Land has revealed serious structural and geophysical threats to the global food supply. As terrestrial ecosystems, agricultural land, and water supplies are degraded, it is possible there will be major crop failures in multiple “breadbasket” regions simultaneously, a situation that would send ripple effects through every sector of the global economy.

The demand for climate resilience ratings is steadily rising. The ecosystem of information supporting such ratings is ever more robust, interactive and detailed.

  • CDP is making it possible to understand the complex and evolving landscape of climate resilience and preparedness for cities, businesses, and regions.
  • The Science-Based Targets initiative is helping businesses to identify clearly defined climate-related goals, and then to map the necessary actions to reform their operations to meet those goals.
  • Services like Carbon Delta are working to identify the higher value of carbon-free investment strategies.
  • The Climate Bonds Initiative finds the market for green bonds and climate-aligned bonds steadily expanding by far wider margins than stocks, bonds or other major asset classes.

It is increasingly evident that businesses that carry climate-pollution liability, either as their core business model or in their wider supply chains, are not as valuable as those that reliably generate profit without environmental damage.

The still-developing DECIDE system will connect climate science insights to financial information systems, supply chain data, and other socio-economic (or SDG-related) data, to trace embedded climate intelligence. Resilience Intel is working with partners to develop:

a network of regional and sectoral knowledge exchanges, or “situation rooms”, to build capacity, invite stakeholder input, and normalize climate intelligence.

Resilience Intel climate-smart finance aggregation research has identified $3.56 trillion in outstanding climate-related finance commitments — the vast majority of which is not yet deployed or capitalized. These commitments align with the rising demand for rapid innovation and investment in climate-smart technologies, infrastructure, and business practices.

The Resilience Intel Charter is intended to serve as the foundation of a multiscale, multistakeholder process to map Earth science to finance and shift to 100% climate-smart finance within 20 years. Image credit: Resilience Intel.

Businesses, markets, investors, and nations, all need to make sure they reduce their climate risk and liability and enhance their resilience and access to climate-smart value creation. The future is climate-smart. Are you?

The featured image at the head of this page is a still-frame from this NASA visualization of “a year in the life of carbon dioxide”, built from satellite observations of Earth’s atmosphere. Image credit: NASA-JPL.