Water Insecurity and Climate Risk: Investment Impact of Floods and Droughts

2 minute read

Investors who are concerned about climate are likely to consider water security. Potential liabilities for extreme flood and drought events linked to global warming may not be reflected in the share prices of high-emitting companies. As these events are so destructive, we ask, should high emitting firms be held (at least partially) to account?

We explore a “hypothetical climate liability regime”. Previous work suggested that North Atlantic hurricane seasons might increasingly generate damages equivalent to a 1-2% share price drop for the top seven carbon-emitting, publicly listed companies. Here, we extend this idea to global flood- and drought-related damages.

We use incremental climate impacts and historical corporate emissions to estimate that climate change-related global flood and drought damages for the period 2012-2016 are approximately equivalent to 2-3% of the top nine carbon-emitting companies’ stock market values. We also discuss the moral responsibilities of emitters and how obligations should be shared between producers and users of high-emission products.

Presenting impacts from extreme weather events in terms of emitting companies’ values makes it easier to appreciate how climate damages relate to the share prices of emitters. This provides context for investors considering climate-related risks as well as for corporate policy decisions.

Q Rayer, K Haustein and P Walton (2021). Water Insecurity and Climate Risk: Investment Impact of Floods and Droughts. American Geophyscial Union (AGU) Fall Meeting, 13-17 December 2021. Session: Climate Litigation Relevant Research: Hazards, Impacts, and Attribution Science. Poster GC35F-0755. https://agu2021fallmeeting-agu.ipostersessions.com/Default.aspx?s=B9-7A-B2-62-04-17-12-B7-26-E1-3A-10-AB-7D-3A-BD