The time has come to refine our understanding of the risks of physical climate change
Maersk
We are at an inflection point in how we deal with climate change. We are past the debate about whether climate change is a real and present risk. It is now commonly understood that it is not only a risk that will affect us in the future. It is a risk that affects us now.
We are also past the debate about the urgency of reducing carbon emissions. So far, most of the popular debate has been focused on reducing emissions, as the Kyoto Protocol and the Paris Agreements have focused on them. Last April, for example, the International Maritime Organization struck a deal to reduce emissions by at least 50% by 2050 compared to 2008 levels.
My company, Maersk, has a track record of ten years of leadership here. We have not only reduced our emissions very aggressively over the last ten years. We have also tried to use this trend as an opportunity to build a level playing field for the industry based on a lower carbon intensity level.
The result of this focus is that the public debate on climate change has been almost exclusively about emissions reduction. But focus on emissions is no longer sufficient.
This is today’s inflection point. The focus on emissions reduction is no longer enough. To see why, consider the future from Maersk’s point of view. We are a very globally dispersed company. Our operations depend on global supply chains. As well as operating on the oceans, we have about seventy terminals inland worldwide: warehouses and other units.
As individuals and as a company, the information we use to make predictions about the physical risks of climate change - the increasing frequency and ferocity of extreme weather such as floods and heatwaves - is global, aggregate, and high level. We have
some general awareness of the risks of the disruption this could cause to public infrastructure, transport systems, and agriculture, and in terms of power cuts and other forms of disruption. We can extrapolate this into vague predictions of damage to business opportunities, lost productivity, changing demand patterns, and so on.
That is, though, increasingly insufficient. We are obliged to ask ourselves how these symptoms of climate change will affect our own operations. At the moment, that is a very difficult question to answer. The challenge is to assess how global data on weather and climate patterns will affect our shipping routes and physical assets.
From macro to micro-level understanding of physical climate risk.
The ability to get the information we need, in the format we need, to factor physical climate change into our commercial decisions could give us a significant commercial advantage in the longer run. However, the priority at the moment is not to compete, but to cooperate to develop the methodologies and lay the foundations for a common framework to standardise the metrics for physical climate risk measurement and reporting.
This is why advancing thinking on physical climate risk disclosure, building on the recommendations of the Task Force on Climate-related Financial Disclosures, so important. It will take us from our macro-level, conceptual understanding of physical climate risk, to a more specific, granular, long-term,
systematic understanding of those risks. It will, I hope, take us from our macro-level, conceptual understanding of physical climate risk, to a more specific, granular, long-term, systematic understanding of those risks. Maersk – and other companies - are keen to be able to incorporate these metrics into our decision making.
I hope that this inflection point is widely understood. If, five years from now, the debate has barely moved forward, and the public and business leaders both think of climate change mitigation primarily in terms of emissions reduction, we will be failing to address some of the most tangible symptoms of this planetary challenge.
This is an important discussion. It holds out the possibility of ensuring that the companies which lead in terms of climate mitigation can be rewarded for talking about the risks they are taking, even if they have not yet perfected their mitigation strategies. This in turn brings a level of candour to the discussion which improves the quality of information available to the market.
The stage after that will be to communicate that this can be not just a defensive move, but also an opportunity. I hope that in five years’ time, those companies which have put in place a progressive, forward thinking strategy will be rewarded by investors based on the new information they have. The hope is that investors, both big and small, institutional and individual, will start allocating investment with a deeper understanding of the physical climactic risks.
If we get this right, we will have done the world, as well as our companies, a considerable service.