J.P. Morgan recently announced it would suspend most future financing for coal. The firm will consider case-by- case financing for developing markets with carbon sequestration (CCS) technology is employed.
Future Bright explain the implications of JPM’s decision in terms of the newly reframed Climate Volatility. In fact, JPM’s decision can be viewed as Climate Volatility Risk Management.
Once we reframe the debate, we then look to understand the risks and impacts of #ClimateVolatility on businesses and consumers across the globe.
Parts of the following paradigm are adapted from the SASB sustainable accounting standards board.
The risks are:
- Physical: weather disruptions, droughts and other natural disaster, zones of social instability, depletion, knock-on effects.
- Transitory: business impact from the secular shift towards sustainability and in particular – the choosing of resource efficient technology by consumers and businesses. Clean food and energy.
- Regulatory: current and future requirements and liability from climate volatility.
We are seeing the impacts of these risks everywhere but climate volatility as a cause remains under-reported. As that paradigm shift takes hold, there is enormous opportunity for investors and communities to profit by choosing prosperity in the form of resource efficient companies and infrastructure.
For those industries with the highest risks and who do not pivot towards resource efficiency – the writing on the wall is increasingly clear – the likelihood of your business being impacted by these risks is rising.
Those impacts fall into four major categories:
- Cash Flow: both rising costs and falling revenue have assailed industries on the wrong side of climate volatility risks. These companies are short volatility and short gamma.
- Asset Values: for certain technologies and business models – assumptions on asset valuation require serious rethought in the case of rising climate volatility.
- Financing: it is increasingly becoming viewed as a fiduciary requirement to assess the impact of investment decisions in terms of climate volatility.
- FutureWasteLiabilities (FWL’s): what did businesses know when? It’s become more clear that the chain of custody and disclosure will have implications for businesses past decision w.r.t. Climate Volatility. Higher FWL’s – Higher VAR.
Reframe the Debate – Hedge your Exposure – Get Long Climate Volatility by investing in Sustainability
– Future Bright