How Will Climate Change Impact Company Assets?
The impact of climate change on company assets is a pressing concern for businesses in every sector. The question is not whether these assets will be affected, but how and when. This article explores the different scenarios and strategies companies can adopt to prepare for and mitigate the effects of climate change on their assets.
Strategic Approaches to Climate Risk Management
Companies can take two distinct paths in response to climate change: adopting regenerative business principles or clinging to outdated and unsustainable models. The former involves integrating modern technologies and innovative design solutions to maximize efficiency, drive business growth, and restore ecosystems and communities, while the latter relies on 20th-century business approaches that assume traditional infrastructure and supply chains will suffice in the face of future climate challenges.
The Regenerative Business Model
A regenerative business approach is characterized by a commitment to sustainability, innovation, and community involvement. Companies that follow this model are likely to:
Invest in renewable and sustainable energy solutions Implement green technologies to reduce emissions and operational costs Engage in partnerships with local communities and ecosystems to ensure long-term viability Adopt circular economy practices to reduce waste and resource depletionThe Conventional Business Model
In contrast, companies stuck in outdated business models may face significant challenges. These rely primarily on traditional fossil fuel-based energy sources and assume that existing infrastructure will remain adequate. However, as climate change exacerbates environmental risks, these conventional approaches may become obsolete and financially perilous.
US Energy Infrastructure and Climate Change
The United States heavily relies on fossil fuels for its energy needs, with a staggering 79% of the country's energy production coming from these sources. This dependence on fossil fuels means that key assets such as drilling equipment, pipelines, and extraction rights form a significant part of the energy infrastructure, with a replacement cost estimated at nearly $250 trillion. Electrical distribution systems, which account for 96% of wires, towers, and transformers, add another $75 trillion to the asset base at risk.
Current Assets at Risk
The assets at risk under the current infrastructure include:
Drilling and extraction equipment and rights Refining and pipeline distribution systems Mine and power plant equipment and rights Power plant operations and other energy rights Electrical distribution systems including wires and transformersUnknown Replacements and Future Investments
The sheer scale of these assets and the projected costs of replacement raise several questions. How will climate change impact the asset base? What new systems will be needed to address the changing environment? And how will these future investments align with the evolving needs of a sustainable economy?
The answers to these questions are not yet known, as the specific impact of climate change is highly uncertain and depends on the scale and extent of future environmental changes. However, it is clear that companies must begin preparing for a future where traditional business models are no longer viable.
Conclusion
Climate change poses a significant threat to company assets, but it also presents an opportunity for companies to innovate and adapt. By investing in sustainable and regenerative practices, companies can not only mitigate risks but also position themselves for long-term success in an evolving economic landscape.