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

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Concerns about water security often inform climate risk-related decisions made by environmentally focused investors. Yet share prices do not always reflect potential liabilities for damage caused by extreme flood and drought events linked to global warming. 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.

In recent articles we estimated 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 chapter, 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. 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.

Quantifying impacts from extreme weather events increase salience and serve 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.

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Rayer Q., Haustein K., Walton P. (2021) Water Insecurity and Climate Risk: Investment Impact of Floods and Droughts. In: Walker T., Gramlich D., Vico K., Dumont-Bergeron A. (eds) Water Risk and Its Impact on the Financial Markets and Society. Palgrave Studies in Sustainable Business In Association with Future Earth. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-77650-3_6.

Link: https://link.springer.com/chapter/10.1007/978-3-030-77650-3_6