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November 23, 2009
Corporations are Failing to Recognize Adaptation in Their Climate Change Strategy
    by Robert Kropp

Finding that adaptation to climate change requires a long-term investment horizon, a report from UK-based institutional investors recommends that investors increase their role in public policy debates on climate change.

For institutional investors, the implications of climate change are considerable. According to a new report entitled Managin g the Unavoidable: investment implications of a changing climate, climate change is "likely to affect investors in sectors dependent on large fixed assets, such as tourism, water, property, construction, energy, and infrastructure, as well as other climate-sensitive sectors including health care, agriculture, forestry and insurance."

The report was produced by Henderson Global Investors and Insight Investment, both of which are UK-based fund managers with a long-term focus, as well as the Universities Superannuation Scheme (USS), a pension fund, with input from Acclimatise, a risk management consulting firm. It finds that for all the risks associated with climate change, there are likely to be investment opportunities arising from adaptation as well.

The report reflects the long-term focus of its producers in finding that "the timeframe over which many significant impacts associated with a changing climate will occur is significantly longer than the timeframe used in most investment decisions being made now." It identifies several areas in which corporations are lagging in respect to climate change adaptation.

Studies have found that even if greenhouse gas (GHG) emissions were reduced to zero today, global temperatures would continue to rise for the next 30 years at least. Therefore, adaptation measures are as important a response to climate change as mitigation. However, according to the report, recognition of adaptation as a strategic issue is not nearly as clearly recognized by corporations as mitigation.

Furthermore, the report identifies weaknesses in corporate risk management processes, as well as a greater emphasis on risks than opportunities. In addition, inconsistent public policies often hamper the development by companies of long-term climate change strategies.

The report provides a number of recommendations for institutional investors. It advises them to integrate climate change-related risks and opportunities into investment analysis and decision-making, and ensure that companies have in place governance and management systems to effectively deal with climate change.

The report also calls on investors to increase their role in the public policy debate concerning climate change. Investors should encourage policy makers to develop long-term policies that will enable companies to design effective climate change strategies. Investors should also call for increased disclosure through mandatory corporate reporting the risks and opportunities presented by climate change.


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